Gregg v. Transportation Workers of America International , 343 F.3d 833 ( 2003 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Gregg, et al. v. Transportation No. 01-4159
ELECTRONIC CITATION: 2003 FED App. 0324P (6th Cir.) Workers of America, et al.
File Name: 03a0324p.06
Before: KEITH, BATCHELDER, and CLAY, Circuit
Judges.
UNITED STATES COURT OF APPEALS
_________________
FOR THE SIXTH CIRCUIT
_________________ COUNSEL
LESTER GREGG, MICHAEL X ARGUED: Michael F. Dadisman, Independence, Ohio, for
HUMESTON, FRANK JAEGER , - Appellants. Randy D. Rinicella, ROETZEL & ANDRESS,
- Cleveland, Ohio, for Appellees. ON BRIEF: Michael F.
ALFRED KLINGER, EMILIO Dadisman, Independence, Ohio, for Appellants. Randy D.
- No. 01-4159
PROCELLI , ROBERT - Rinicella, ROETZEL & ANDRESS, for Appellees.
RICHARDS, THOMAS SACK , >
, CLAY, J., delivered the opinion of the court, in which
PAUL WINKLER and SHIRLEY -
WINKLER, KEITH, J., joined. BATCHELDER, J. (pp. 31-32), delivered
- a separate opinion concurring in the result only.
Plaintiffs-Appellants, -
- _________________
v. -
- OPINION
- _________________
TRANSPORTATION WORKERS -
OF AMERICA INTERNATIONAL, - CLAY, Circuit Judge. Plaintiffs Lester Gregg, Michael
SONNY HALL and JOHN - Humeston, Frank Jaeger, Alfred Klinger, Emilio Procelli,
ORLANDO, - Thomas Sack, Robert Richards, Paul Winkler and Shirley
Defendants-Appellees. - Winkler appeal an October 2, 2001 order granting Defendants
- Transportation Workers of America International, Sonny
- Hall, and John Orlando summary judgment in Plaintiffs’
- action alleging breach of fiduciary duty brought pursuant to
N the Employee Retirement Income Securities Act (“ERISA”),
Appeal from the United States District Court 29 U.S.C. § 1132(a)(1)(B) and (e)(1). For the reasons set
for the Northern District of Ohio at Cleveland. forth below, we REVERSE the district court.
No. 99-02659—Patricia A. Gaughan, District Judge.
FACTS
Argued: June 11, 2003 With the exception of Shirley Winkler, Paul Winkler’s
wife, Plaintiffs are or were members of the Defendant
Decided and Filed: September 11, 2003 Transportation Workers Union of America (“TWU”), Air
1
No. 01-4159 Gregg, et al. v. Transportation 3 4 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
Transport Division. Plaintiff Sack lives in North Carolina Christian Wozny, an insurance expert holding a Chartered
while the others reside in Ohio. Each obtained group term Life Underwriters (“CLU”) designation, to review different
life insurance under a master policy issued by Transamerica plans.2 FPA and the actuary determined that the Plan offered
Assurance Company.1 Their policies became effective by Transamerica Assurance Corporation represented the best
January 1, 1996. option. Along with TWU’s local presidents, FPA and Silkes
negotiated the Plan’s precise terms with Transamerica.
TWU is an international union with approximately 100,000
members, including, inter alia, employees of American After reaching an agreement with Transamerica, FPA
Airlines. Defendant Hall is the President of TWU and held worked with TWU’s local presidents to disseminate the
that post at all times relevant to this action. Defendant Plan’s details to the union membership. This effort included
Orlando is the Vice President of TWU’s Air Transport posting information at airports and mailing material to
Division and also held this post at all times relevant to this individual members. As one of these bulletins made clear, in
action. Both Hall and Orlando participated in acquiring the large print, the policy offered “[a] flat-rate premium that will
policies on the behalf of TWU’s members. not increase with age.” (J.A. at 516.) Another contained the
exuberant headline, “NO INCREASES DUE TO AGE.”
In 1995, American Airlines announced that it would replace (J.A. at 517.) The union documents also included a question-
the prior life insurance policy it provided for its employees, and-answer form and other correspondence explaining the
including members of TWU’s Air Transport Division, with an plan’s features. The question-and-answer sheet contained the
age-rated group term life insurance policy. The new plan following information:
would cause premiums to significantly increase, particularly
for older workers. As a result, union members began QUESTION: Can I continue my TWU OTP Plan after
contacting their local presidents to express concern about the retirement at the same monthly flat rate?
high cost of American Airlines’ new insurance plan.
Responding to these concerns, TWU’s Air Transport Division
began to investigate alternative insurance options.
Hall asked TWU’s insurance broker, Future Planning
Associates (“FPA”) to meet with the Union’s local presidents 2
W ithout any citation to the record, Defendants claim “the Union
to determine if more affordable insurance alternatives existed. retained an insurance expert who held the Chartered Life Underwriter
FPA received compensation from insurance companies for (CLU) designation to review the various p lans und er consideration.”
facilitating the sale of policies. FPA interviewed at least two (Defend ants’ Brief at 4-5.) The CLU designee is not mentioned
companies. Additionally, TWU retained an independent elsewhere in Defendants’ brief, nor does Orlando mention him at any
point in his deposition. The district court’s opinion provides his name,
actuary, Lawrence Silkes, to review and evaluate the various but cites to one of Hall’s affidavits (merely mentioning Wozny’s name)
insurance proposals. TWU also purports to have retained and to a pa ge in Hall’s deposition that never mentio ns Christian W ozny.
W ithout the ability to establish what role, if any, Wo zny assumed, we
cannot use W ozny’s ephemera l appearan ce in D efendants’ brief and
1
uncertain participation in the policy selection process to support
At various points, the policy is called the “TWU OTP” policy. OTP Defend ants’ argument that no genuine issue o f material fact exists as to
stands for “Optional Term Policy.” whether Defendants breached their fiduciary duty.
No. 01-4159 Gregg, et al. v. Transportation 5 6 Gregg, et al. v. Transportation No. 01-4159
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ANSWER: Yes. The TWU OTP Plan can be COUNSEL: And the rate increase you’re referring to,
continued indefinitely after retirement at you’ve said it several times, someone told
the same monthly rate. you it would just be pennies, correct?
.... GREGG: If anything, it would go up a few cents or a
couple of pennies.
QUESTION: Can the monthly flat rate for the TWU
OTP Plan increase because of age? COUNSEL: That was told to you on one occasion,
right?
ANSWER: No.
GREGG: At the meeting. At the meeting from the
.... representative, whoever those gentlemen
were from.
QUESTION: Can the monthly flat rate for the TWU
OTP Plan increase for any other reason? ....
ANSWER: Yes. The rate may increase like all other COUNSEL: And you’re not sure the person who spoke
plans of this type if the death claims those words about the pennies increase,
experience is higher than it has been in you don’t know that person’s name,
the past for TWU members. . . . If death correct?
claims experience is lower than it has
been for TWU members, the monthly GREGG: No, I don’t know his name, no.
flat rate for the TWU OTP Plan
members could be reduced. COUNSEL: And you don’t know who they represented,
do you?
(J.A. at 521-23) (emphasis in original).
GREGG: I understand they represented the union,
Defendants also made in-person presentations to union because the union sent them there. It was
members, including Plaintiffs. At one of these information a union meeting, so it had to be the union,
sessions, several Plaintiffs asked questions about possible rate that’s what I thought.
increases and the ability to keep their coverage when retired.
TWU’s representatives and FPA members told the audience (J.A. at 433.) The presenters also informed Plaintiffs that
that the current premium would not increase for three years coverage would not decrease nor would rates increase due to
and that any eventual increase would be minimal. As the age of the policyholder, and that coverage would continue
Plaintiff Paul Winkler testified in his deposition, the union into retirement.
claimed that “if the cost went up at all, it would only be a
penny or two, and that wouldn’t be for at least three years.” TWU and FPA made policy applications available at these
(J.A. at 533.) Plaintiff Gregg gave similar testimony: meetings. Members enrolled using a standard enrollment
form. Every union member who chose to enroll received a
No. 01-4159 Gregg, et al. v. Transportation 7 8 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
document titled “Group Term Life Insurance Certificate.” HALL: Yes.
The Certificate described the insured’s right to review the
Group Master Policy, although Transamerica retained its copy COUNSEL: Did you read the policy?
in New York City and TWU kept the union’s copy at its
Dallas offices. Defendants claim that each Certificate HALL: No.
“expressly described . . . the conditions under which the Plan
could be terminated.” (Defendants’ Brief at 6.) Defendants, COUNSEL: Why not?
however, do not cite to a specific page in the record. (See id.)
Under the heading “WHEN INSURANCE STOPS,” the HALL: Because my broker and my ATD [Air
Certificate explains: Transportation Division] Director
[Orlando] said this is all that has been
Your insurance stops at the earliest of: (1) the date of agreed to. Just the policy the International
your death; (2) 31 days after a premium due date, if the President would sign and I believe
premiums for your insurance have not been paid; (3) the everything in it was accurate. No, I didn’t
date your membership with the Organization ends; read it.
(4) the date the Group Master Policy is amended so that
your insurance stops; (5) the date the Group Master (J.A. at 590.) Defendant Hall also did not know that
Policy stops; or (6) the date you ask, in writing, for it to Transamerica could unilaterally terminate the policy on sixty
stop. days notice after January 1, 1999, or that Transamerica could
unilaterally terminate the Master Policy if it covered fewer
(J.A. at 359) (emphasis added). The Certificate does not than fifty insureds:
explain the circumstances that could cause TWU and
Transamerica to amend the Group Master Policy, nor does the COUNSEL: None of these four documents
Certificate describe when (or how) the Group Master Policy [distributed to the membership] mention
could stop. Following their union’s advice, Plaintiffs the fact that there has to be at least fifty
enrolled. people in this plan?
Actually, Transamerica could terminate the policy or ....
modify its terms after a three-year period. What Defendants HALL: None of these documents say that.
Hall and Orlando knew is unclear. In his deposition, Orlando
generally denied any inconsistency between the Group Master QUESTION: When did you—when were you first
Policy’s terms and what TWU informed its membership. Hall informed that there has to be at least a
evidently never read the Group Master Policy: minimum of fifty people?
COUNSEL: Mr. Hall, you signed the group master HALL: Just now.
policy for the Transamerica policy for all
members? COUNSEL: Today?
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Workers of America, et al. Workers of America, et al.
HALL: You just informed me of that. Rate Per $1000 of Coverage
Age
....
Under 50 $0.45
COUNSEL: Is there anything in any of these exhibits
[the documents distributed to 50-59 $0.73
membership] that even notifies the Over 59 $0.76
bargaining units that in sixty days it can
be unilaterally terminated?
The highest new rate still remained lower than the alternative
HALL: Not that I read in there, no. offered by American Airlines, which required premiums of
$2.55 per $1000 of coverage. Nevertheless, under the policy
(J.A. at 587-88.) Defendant Hall distributed information to the union promised, a fifty-nine-year-old insured would pay
union members based on what FPA broker John Pescitelli $1,200 annually in monthly premiums for a $250,000 policy,
told him. He did not verify the information Pescitelli but that insured now must pay $2,280 for the same initial
provided with any other source. coverage. Worse, the $250,000 policy would only remain
worth $250,000 temporarily because coverage would decrease
After the group policy became effective on January 1, 1996, after age sixty-four:
Transamerica experienced substantial losses. Various factors
contributed to the insurer’s problems, including (1) American Age Percentage of Coverage
Airlines’ offer of early retirement to certain union members,
many of whom accepted; (2) a predominately older group of 65 92%
insureds; and (3) a surprisingly high number of claims. As
early as October of 1996, only nine months after the policy 66 85%
became effective, Transamerica’s claims expenses equaled
1.4 times the premiums paid. Consequently, in September of 67 78%
1998, Transamerica notified TWU that it would exercise its
contractual right to terminate the policy effective January 1, 68 72%
1999.
69 66%
Faced with this forthcoming termination, FPA negotiated
an amended policy with Transamerica that would become 70 61%
effective January 1, 1999. The parties agreed to new terms,
pursuant to which union members’ premiums would increase 71 56%
from $0.40 per $1000 of coverage (regardless of age) to a new
age-based rate schedule: 72 52%
73 48%
No. 01-4159 Gregg, et al. v. Transportation 11 12 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
November 9, 2000. Plaintiffs do not contest that decision and
74 44%
Transamerica is not a party to this appeal.
75 41% The remaining Defendants moved for summary judgment
Over 75 38% on June 13, 2001, and Plaintiffs moved for summary
judgment two days later. On October 2, 2001, the district
court granted Defendants’ motion. On October 26, 2001,
Thus, when the insured turns seventy-five under the policy Plaintiffs filed a timely notice of appeal.
the union promised, he would still pay only $1,200 in annual
premiums for a $250,000 policy. Under the new policy, a DISCUSSION
seventy-five-year-old insured would pay $2,280 for only
$95,000 in coverage. The difference between the promised This case requires us to determine what duties Defendants
policy and the new policy becomes increasingly stark as had to Plaintiffs and whether a genuine issue of material fact
insureds age: by seventy-five, the new policy forces insured exists as to whether Defendants breached any such duties.
to pay an additional $1080 in annual premiums for $155,000
less in coverage. I.
The union retained the same independent actuary who We review summary judgment de novo. Eastman Kodak
reviewed the original policy, and the actuary recommended Co. v. Image Technical Servs., Inc., 504 U.S. 451, 466 n.10
the new policy. The FPA also negotiated a one-time election (1992). Summary judgment is appropriate when there is no
for all retired union members (or members who would retire genuine issue of material fact, thereby entitling the movant
by January 1, 1999) age sixty-five or older, to choose non- to a judgment as a matter of law. Kocsis v. Multi-Care
reducing coverage, i.e., death benefits that would not decrease Mgmt., Inc., 97 F.3d 876, 882 (6th Cir. 1996). In Anderson
at the same rates established by the new policy. Plaintiffs v. Liberty Lobby, Inc., 477 U.S. 242 (1986), the Supreme
Paul Winkler and Gregg availed themselves of this one-time Court explained that “[t]he mere existence of a scintilla of
election and remain beneficiaries under the new policy. evidence in support of the plaintiff's position will be
insufficient; there must be evidence on which the jury could
Dissatisfied with the premium increases and benefit reasonably find for the plaintiff.” Id. at 322. Thus, our
reductions, Plaintiffs filed a complaint in United States “inquiry, therefore, unavoidably asks whether reasonable
District Court against TWU, Transamerica, Hall, and jurors could find by a preponderance of evidence that the
Orlando. Plaintiffs alleged Hall, Orlando and TWU breached plaintiff is entitled to a verdict.” Id.their fiduciary duty under ERISA. Plaintiffs also alleged
breach of contract against Transamerica for terminating the To defeat summary judgment, the plaintiff "must come
original Group Master Policy. forward with more persuasive evidence to support [his or her]
claim than would otherwise be necessary." Matsushita Elec.
On July 25, 2000, Transamerica moved for summary Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
judgment. The district court granted that motion on If the defendant successfully demonstrates, after a reasonable
period of discovery, that the plaintiff cannot produce
No. 01-4159 Gregg, et al. v. Transportation 13 14 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
sufficient evidence beyond the bare allegations of the (C) by diversifying the investments of the plan so as
complaint to support an essential element of his or her case, to minimize the risk of large losses, unless under
summary judgment is appropriate. Celotex Corp. v. Catrett, the circumstances it is clearly prudent not to do
477 U.S. 317, 325 (1986). When determining whether to so; and
reach this conclusion, we view the evidence and draw all
reasonable inferences in the light most favorable to the non- (D) in accordance with the documents and instruments
moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, governing the plan.
157 (1970); Williams v. Int’l Paper Co., 227 F.3d 706, 710
(6th Cir. 2000); Smith v. Thornburg, 136 F.3d 1070; 1074 29 U.S.C. § 1104(a)(1).
(6th Cir. 1998).
We have explained that the fiduciary duties enumerated in
II. § 404(a)(1) have three components. See Kuper v. Iovenko, 66
F.3d 1447, 1458 (6th Cir. 1995). The first element is a "duty
“ERISA is a comprehensive statute designed to promote the of loyalty" pursuant to which "all decisions regarding an
interests of employees and their beneficiaries in employee ERISA plan 'must be made with an eye single to the interests
benefit plans.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 of the participants and beneficiaries.'" Kuper, 66 F.3d at 1458(1983). In § 404(a)(1), the statute establishes that a trustee (quoting Berlin v. Mich. Bell Tel. Co., 858 F.2d 1154, 1162
administering a plan that ERISA governs has fiduciary (6th Cir.1988)). Second, ERISA imposes a "prudent man"
responsibilities: obligation, which is "an unwavering duty" to act both "as a
prudent person would act in a similar situation" and "with
[A] fiduciary shall discharge his duties with respect to a single-minded devotion" to those same plan participants and
plan solely in the interest of the participants and beneficiaries.3 Id. (quoting Berlin, 858 F.2d at 1162).
beneficiaries and— Finally, an ERISA fiduciary must "'act for the exclusive
purpose'" of providing benefits to plan beneficiaries. Id.
(A) for the exclusive purpose of: (quoting Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.
1982)).
(i) providing benefits to participants and their
beneficiaries; and
(ii) defraying reasonable expenses of administering
the plan;
3
Courts define “prudent person”as that term is employed in the
(B) with the care, skill, prudence, and diligence under common law of trusts. See, e.g., Katsoaros v. Cody, 744 F.2d 270, 279
the circumstances then prevailing that a prudent (2d Cir. 1984). “Prudent person” is an objective standard. 29 U.S.C.
§ 110 4(a)(1)(B ); Marshall v. Glass/Metal Ass’n Pension Plan, 507 F.
man acting in a like capacity and familiar with Supp. 378, 384 (D. Haw. 1980) (“If fiduciaries com mit a pe nsion p lan’s
such matters would use in the conduct of an assets to investments which they do not fully und erstand , they will
enterprise of a like character and with like aims; nonetheless be judged, as provided in [ER ISA], acco rding to the standards
of others ‘acting in like capacity and familiar with such matters.’”)
(quo ting 29 U.S.C. § 1 104 (a)(1)(B)).
No. 01-4159 Gregg, et al. v. Transportation 15 16 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
“[T]he duties charged to an ERISA fiduciary are ‘the extensiveness and thoroughness of the expert's
highest known to the law.’” Chao v. Hall Holding Co., Inc., investigation, whether the expert's opinion is supported
285 F.3d 415, 426 (6th Cir. 2002) (quotation omitted). When by relevant material, and whether the expert's methods
enforcing these important responsibilities, we “focus[] not and assumptions are appropriate to the decision at hand.
only on the merits of the transaction, but also on the
thoroughness of the investigation into the merits of the Bussian v. RJR Nabisco, Inc., 223 F.3d 286, 301 (5th Cir.
transaction." Id. (citing Howard v. Shay, 100 F.3d 1484, 2000). One extremely important factor is whether the expert
1488 (9th Cir. 1996)). advisor truly offers independent and impartial advice. See id.
at 303 (“[A] reasonable factfinder could conclude that RJR
III. failed to structure, let alone conduct, a thorough, impartial
investigation of which provider or providers best served the
The district court found that Defendants properly relied on interests of the participants and beneficiaries.”) (emphasis
expert advice. In Chao v. Hall Holding Co., this Court added); Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.
adopted a three-part test to evaluate a fiduciary’s reliance 1982) (Friendly, J.) (requiring a “careful and impartial
upon financial advisors. The fiduciary must (1) “investigate investigation”) (emphasis added).
the expert’s qualifications”; (2) “provide the expert with
complete and accurate information”; and (3) “make certain Defendants relied on FPA, however, and FPA served as a
that reliance on the expert’s advice is reasonably justified broker, not an impartial analyst. As Hall explained in his
under the circumstances.” Chao, 285 F.3d at 430 (citing deposition:
Howard v. Shay, 100 F.3d 1484, 1489 (9th Cir. 1995)).
QUESTION: Who is the liaison between the union and
Plaintiffs do not argue that Defendants failed to investigate Future Planning Associates?
their experts’ qualifications or provide the experts with
complete and accurate information. Defendants have failed HALL: That would be John Pescitelli. And at
to show, however, that no genuine issue of material fact exists the time some of his representatives,
as to whether Defendants were reasonably justified in relying agents, but I can’t name them other than
on the expert advice they received. John Pescitelli.
A fiduciary’s effort to obtain an independent assessment QUESTION: What is Mr. Pescitelli’s title with the
serves as evidence that the fiduciary undertook a thorough union?
investigation. Chao, 285 F.2d at 430; Howard, 100 F.3d at
1489; Donovan v. Cunningham, 716 F.2d 1455, 1474 (5th HALL: He is the broker of record. And he is
Cir. 1983); Montgomery v. Aetna Plywood, Inc., 39 F. also the President of Future Planning.
Supp.2d 915 (N.D. Ill. 1998). As the Fifth Circuit explained:
QUESTION: Is he a member of the International
A determination whether a fiduciary's reliance on an Union too?
expert advisor is justified is informed by many factors,
including the expert's reputation and experience, the HALL: No.
No. 01-4159 Gregg, et al. v. Transportation 17 18 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
QUESTION: Does he get paid directly by the union? protect the interests of both buyer and seller or the same
attorney can represent both husband and wife in a divorce.
HALL: No.
FPA, however, had an enormous role relative to Silkes, the
QUESTION: Is his compensation from Future union’s actuary.4 Silkes submitted a brief memorandum
Planning Associates? endorsing Transamerica. Other than that, no one seems to
know precisely what role Silkes assumed. As Orlando
HALL: Yes. testified:
.... [T]his Lawrence Silkes guy, he was the actuary that
reviewed—and I don’t know what they do really,
QUESTION: And you hired them as the broker for because I’m not—I’m not an insurance salesman by far,
about seven years when you became so I don’t know exactly what they do. But he reviewed
President? the policies or whatever the plan was, and he’s the one
that made the recommendation that it was okay, you
HALL: Yes. We picked up from the Local and know, that we would be good with this plan.5
then just hired them as broker for the
International. When I say “hire,” we
don’t pay them, as I said. We use them 4
as consulting. He makes fees, whatever Again, as noted in footnote two, supra, we cannot consider what
he gets from the insurance companies, role Christian Wozny had. One would assume that if he had a substantial
whomever. role, Defendants would have done a be tter job highlighting his
indep endent input to us.
QUESTION: He gets a percentage? 5
Orlando also testified:
HALL: I assume he gets that. ORLANDO: By a letter dated September 6, 1995, I addressed
all of the local presidents and gave the outline of
(J.A. at 581.) FPA and Pescitelli, therefore, are not what the insurance plan was. A nd alo ng with it
independent analysts. FPA does not work for TWU; rather, there was a couple of [sic] two or three pages of
insurance companies like Transamerica pay Pescitelli’s questions that were addressed by P escitelli’s
salary. As a broker, FPA and its employees have an incentive firm that I ha d attached to it.
to close deals, not to investigate which of several policies QU ESTION : Okay. Yo u say, “Pescitelli’s firm,” right?
might serve the union best. A business in FPA’s position
must consider both what plan it can convince the union to ORLANDO: FPA, Future Planning. I think he’s the president
accept and the size of the potential commission associated of Future Planning.
with each alternative. FPA is not an objective analyst any QUESTION: But doesn’t he have to re port to you because
more than the same real estate broker can simultaneously you’re the Vice President of this area?
ORLANDO: No , he do esn’t.
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Workers of America, et al. Workers of America, et al.
(J.A. at 636-37.) Orlando, the Vice-President of TWU’s Air responsibilities, see Donovan v. Mazzola, 716 F.2d 1226,
Transport Division, had no idea what Silkes did except that 1234 (9th Cir. 1983). "An independent appraisal is not a
Silkes concluded that the Transamerica plan was acceptable. magic wand that fiduciaries may simply waive over a
One can only surmise, for instance, whether Silkes received transaction to ensure that their responsibilities are fulfilled.”
the information upon which he based his evaluations directly Donovan v. Cunningham, 716 F.2d 1455, 1474 (5th Cir.
from the insurance companies or through Pescitelli. 1983); see also Howard, 100 F.3d at 1489, In re Unisys Sav.
Plan Litig., 74 F.3d 420, 434-36 (3d Cir. 1996); Roth v.
Throughout the process, FPA, not Silkes, had the primary Sawyer-Cleator Lumber Co., 16 F.3d 915, 918 (8th Cir.
role. Orlando testified that FPA “handle[d] everything as far 1994); Mazzola, 716 F.2d at 1234. Fiduciaries are ultimately
as communication and as far as working with the responsible for making a careful and perspicacious choice.
Transamerica people.” (J.A. at 637.) Orlando explained that Bussian, 223 F.3d at 301 (explaining that fiduciaries may not
FPA managed the in-person meetings with union members.6 “rely blindly” on advice); In re Unisys., 74 F.3d at 435-36
Orlando also stated that “Future Planning was the one that did ("[W]e believe that ERISA's duty to investigate requires
all of the communication as far as the mail-outs to the homes fiduciaries to review the data a consultant gathers, to assess its
[and] the solicitation.” (J.A. at 639.) In fact, Hall concedes significance and to supplement it where necessary.");
that, other than with Pescetelli, he never double-checked any Katsoaros v. Cody, 744 F.2d 270, 279 (2d Cir. 1984) (“A
of the information related to the policy with any source, trustee’s lack of familiarity with investments is no excuse:
including Silkes. Thus, TWU, Hall and Orlando apparently under an objective standard trustees are to be judged
relied almost entirely on FPA, which was not an impartial ‘according to the standards of others “acting in a like capacity
analyst. and familiar with such matters.”’”) (citation omitted); Withers
v. Teachers Retirement Sys., 447 F.Supp. 1248, 1254
Independent expert advice is not a “whitewash,” Bierwirth, (S.D.N.Y. 1978), aff'd mem., 595 F.2d 1210 (2d Cir.1979)
680 F.2d at 272, and it does not provide a complete defense ("In the area of investment decisions, the obligation to
to the allegation that plan administrators neglected their exercise prudence [includes] an obligation to . . . make
independent inquiry into the merits of particular investments
rather than to rely wholly on the advice of others.").
As noted above, both Orlando and Hall relied primarily on
QUESTION: Who does he report to? FPA. Hall, TWU’s President, did not learn of the group
ORLANDO: Yo u’d have to ask him. I think—I don’t know. policy’s termination provision or its fifty-insured minimum
until his deposition. Hall concedes he never bothered to read
(J.A. at 637.) This exchange further demonstrates FPA’s une xplained ro le the policy. Fiduciaries need not become experts in employee
in the pro cess. It is hard to imagine that Orlando justifiably relied on benefits, and may rely on independent expert advice, but
counsel from an advisor responsible to someone—worse, an unknown requiring that a fiduciary read the policy he signs and that he
party— other than O rlando himself.
have a basic understanding of its most important provisions
6 does not ask too much.
Orlando testified that “the FPA had their representatives going to the
various locales and conducting meetings either in the union halls or on the
property.” (J.A. at 639.)
No. 01-4159 Gregg, et al. v. Transportation 21 22 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
IV. QUESTION: Well, you understand that you’d have the
right to inspect the Group Master Policy,
The district court also determined that Defendants did not didn’t you?
breach their duty of loyalty. Plaintiffs argue Defendants
either lied about or omitted material information regarding WINKLER: I’m supposed to go to New York during
(1) the size of possible premium increases and the possibility their normal business hours?
that benefits would decrease with age; (2) Transamerica’s
right to terminate the plan; and (3) the requirement that the (J.A. at 535-36.) A fiduciary has not satisfied his
plan maintain at least fifty enrollees. responsibilities by disseminating information in a manner not
reasonably calculated to reach beneficiaries.
As one would expect, “[l]ying is inconsistent with the duty
of loyalty owed by all fiduciaries and codified in § 404(a)(1).” Defendants’ second argument warrants more extensive
Peoria Union Stock Yards Co. Retirement Plan v. Penn. Mut. attention. ERISA distinguishes between pension plans and
Life Ins. Co., 698 F.2d 320, 326 (7th Cir. 1983). A fiduciary welfare plans. A pension plan “provides retirement income
also may not materially mislead beneficiaries. Varity Corp. v. to employees” or “results in a deferral of income by
Howe, 516 U.S. 489, 505 (1996). We have explained that “a employees for periods extending to the termination of . . .
misrepresentation is material if there is a substantial employment or beyond.” 29 U.S.C. § 1002(2). Unlike
likelihood that it would mislead a reasonable employee in pension plans, welfare plans include those “established or . . .
making an adequately informed decision in pursuing . . . maintained for the purpose of providing . . . medical, surgical
benefits to which she may be entitled.” Krohn v. Huron or hospital care or benefits.” Id. at § 1002(1). Life insurance
Memorial Hosp., 173 F.3d 542, 547 (6th Cir. 1999) (citing In plans qualify as welfare plans. Metro. Life Ins. Co. v.
re Unisys, 57 F.3d at 435-36). Significantly, “a fiduciary Bigelow, 283 F.3d 436, 440 n.3 (2d Cir. 2000); Filipowicz v.
breaches its duties by materially misleading plan participants, Am. Stores Benefit Plans Comm., 56 F.3d 807, 815 (7th Cir.
regardless of whether the fiduciary’s statements were made 1995); Brandon v. Travelers Ins. Co., 18 F.3d 1321, 1324
negligently or intentionally.” Id. at 547 (citing Berlin, 858 (5th Cir. 1994).
F.2d at 1163-64).
As a matter of law under ERISA, one of the key differences
Defendants make two arguments. First, Defendants argue between welfare and pension plans is that welfare plan
that all of the relevant information “was contained in the benefits do not vest. 29 U.S.C. §§ 1051, 1084; Wulf v.
Group Master Policy, available to the union members for the Quantum Chem. Corp., 26 F.3d 1368, 1377 (6th Cir. 1994).
asking.” (Defendants’ Brief at 14.) Although each individual Consequently, plan administrators may modify a welfare
policyholder’s certificate explained the insured’s right to plan’s terms at any time, whether or not the employer or
inspect the Group Master Policy during normal business union reserved the right to do so. See, e.g., Lockheed Corp.
hours, this does not constitute “disclosure” in any meaningful v. Spink, 517 U.S. 882, 890 (1996) (citing Curtiss-Wright
sense because Transamerica kept its copy in New York and Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995)); Helwig v.
TWU retained the union’s copy in Dallas. (J.A. at 358.) Kelsey-Hayes Co., 93 F.3d 243, 248 (6th Cir. 1996). As
When deposed by Defendants’ counsel, Paul Winkler Defendants correctly note, fiduciary duties do not apply to the
complained: amendment or termination of an unfunded, contingent benefit
No. 01-4159 Gregg, et al. v. Transportation 23 24 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
plan. Pope v. Cent. States Southeast and Southwest Areas duty by failing to disclose that it could amend or terminate the
Health & Welfare Fund, 27 F.3d 211, 212 (6th Cir. 1994); plan. Id. at 405-06. Defendants are correct that this Court
Sutter v. BASF Corp., 964 F.2d 556, 562 (6th Cir. 1992); held “GM was not required to disclose in its summary plan
Adams v. Avondale Indus., Inc., 905 F.2d 943, 947 (6th Cir. descriptions that the plan was subject to amendment or
1990). termination.” Id. at 405. This Court wrote:
At this point, however, Defendants make a leap We are not aware of any court of appeals decision
unsupported by ERISA or case law by arguing that because imposing fiduciary liability for failure to disclose
fiduciary duties do not apply to the amendment or termination information that is not required to be disclosed. A
of a welfare plan, “a plan administrator need not disclose the fortiori, there can be no fiduciary duty to disclose the
fact that an employee welfare benefit plan is subject to possibility of a future change in benefits. Had an early
amendment or termination.” (Defendants’ Brief at 14.) This retiree asked about the possibility of the plan changing,
is only true if plan administrators are not otherwise providing and had he received a misleading answer, or had GM on
beneficiaries with information. Defendants cite Sprague v. its own initiative provided misleading information about
Gen. Motors Corp., 133 F.3d 388 (6th Cir. 1998) (en banc), the future of the plan . . . a different case would have
in which this Court interpreted, inter alia, ERISA’s disclosure been presented. But we do not think that GM’s accurate
provisions contained in 29 U.S.C. § 1022(b). Several representations of its current program can reasonably be
decisions from other circuits appear to support Defendants’ deemed misleading. GM having given out no inaccurate
position; for instance, in Wise v. El Paso Natural Gas Co., information, there was no breach of fiduciary duty.
986 F.2d 929, 935 (5th Cir. 1993), the Fifth Circuit wrote that
"[s]ection 1022(b) relates to an individual employee's Id. at 406 (citations omitted) (first emphasis of “possibility”
eligibility under then existing, current terms of the Plan and in original; other emphasis added). To reiterate, “[h]ad an
not to the possibility that those terms might later be changed, early retiree asked about the possibility of the plan changing,”
as ERISA undeniably permits." See also Jensen v. SIPCO, or “had GM on its own initiative provided misleading
Inc., 38 F.3d 945, 952 (8th Cir. 1994) (citing Wise); Gable v. information,” the fiduciary would have had a responsibility to
Sweetheart Cup Co., 35 F.3d 851, 858 (4th Cir. 1994) (citing provide a non-misleading answer. Id.Wise). Like these cases, Sprague considered whether a plan
administrator must provide unrequested information, not In this regard, our subsequent decision in Krohn v. Huron
whether an administrator may mislead when providing Memorial Hospital, 173 F.3d 542 (6th Cir. 1999), developed
information. See Sprague, 133 F.3d at 406; Jensen, 38 F.3d Sprague further. Krohn involved a permanently disabled
at 952; Gable, 35 F.3d at 858; Wise, 986 F.2d at 935. plaintiff who claimed she lost the opportunity to secure long-
term disability benefits because the defendant, her prior
Sprague involved a putative class of retirees who brought employer, breached its fiduciary duty under ERISA. Id. at
an action against General Motors alleging that the company 545. The defendant never notified the plaintiff about
improperly modified a health care plan that would have available long-term disability benefits despite her husband’s
provided the beneficiaries with free lifetime basic health general requests for information about the availability of
coverage. 133 F.3d at 389-91. The plaintiffs argued, among disability benefits for his wife. Id. at 548. We held that
several things, that General Motors breached its fiduciary “once an ERISA beneficiary has requested information from
No. 01-4159 Gregg, et al. v. Transportation 25 26 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
an ERISA fiduciary who is aware of the beneficiary’s status own initiative provides misleading information about the
and situation, the fiduciary has an obligation to convey future benefits of a plan.” Id.
complete and accurate information material to the
beneficiary’s circumstance, even if that requires conveying Turning to the specific facts this case presents, Plaintiffs
information about which the beneficiary did not specifically participated in question-and-answer sessions in which,
inquire.” Id. 547 (emphasis added); see also In re Unisys obviously, Plaintiffs questioned Defendants and their
Sav. Plan Litig., 74 F.3d 420, 434-36 (3d Cir. 1996) (holding representatives about the policy. Plaintiff Gregg testified that
that Unisys breached its fiduciary duty where it "affirmatively “questions were being asked” at these sessions. (J.A. at 433.)
and systematically represented to its employees that once they Plaintiff Paul Winkler also testified:
retired, their medical benefits would continue for life—even
though as the district court concluded in rejecting the retirees’ QUESTION: Did you personally ask questions at the
contract claim, the plans clearly permitted the company to meeting?
terminate benefits"); Anweiler v. Am. Elec. Power Serv.
Corp., 3 F.3d 986, 991 (7th Cir.1993) (finding fiduciary duty WINKLER: Yes.
to communicate material facts affecting interests of
beneficiaries "exists when a beneficiary asks fiduciaries for QUESTION: Tell me some of the things that you
information, and even when he or she does not"); Eddy v. recall being interested in that led you to
Colonial Life Ins. Co., 919 F.2d 747, 750 (D.C. Cir.1990) ask some questions.
("At the request of a beneficiary (and in some circumstances WINKLER: I asked questions pertaining to will the
upon his own initiative), a fiduciary must convey complete premium ever go up, number one. The
and correct material information to a beneficiary."). answer was the premium is guaranteed
Following this course, we recently decided James v. Pirelli for three years. And if it does go up, it
Amstrong Tire Co., 305 F.3d 439 (6th Cir. 2002). Pirelli will only be a matter of a couple pennies.
Armstrong involved an employer that, on its own initiative, How long is the policy good for? Policy
provided materially misleading and inaccurate information to is good forever until you die. Is it
the plaintiffs in group meetings designed to convey decreasing insurance? No. Are the
information about benefits. Id. at 443. The employer’s premiums based upon your age? No.
human resources representative also provided materially And to verify it, they gave us a hotline to
misleading and inaccurate information when she indicated to call, which I most certainly did.
employees that the employer could not change their benefits (J.A. at 531.) Thus, Plaintiffs have adduced testimony that
during retirement. Id. The employer argued that some they asked questions.
plaintiffs did not inquire about their benefits, but we held that
“it is not necessary that employees ask specific questions Defendants distributed bulletins encouraging union
about future benefits or that they take the affirmative step of members to consider a policy with “a flat rate premium that
asking questions about the plan to trigger the fiduciary duty.” would not increase with age.” (J.A. at 516, 517.)
Id. at 454. Rather, we stressed that a “breach of fiduciary Defendants’ question-and-answer sheet unequivocally states,
duty occurs when the employer or plan administrator on its
No. 01-4159 Gregg, et al. v. Transportation 27 28 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
“Question - Can the monthly flat rate for the TWU OTP Plan See, e.g., Abbruscato v. Empire Blue Cross & Blue Shield,
increase because of age? Answer - No.” (J.A. at 521.) 274 F.3d 90, 103 (2d Cir. 2001) (“Even if, on remand, the
According to Paul Winkler’s testimony, in direct response to trier of fact determines that there was no promise to vest the
his questions, Defendants (or their representatives) told union life insurance benefits, Empire may have still violated any
members that the policy would not base premiums on age, fiduciary duties in its retiree letters and other communications
that the premiums would not increase by more than pennies, which promised lifetime benefits but failed to note that
and that benefits would not decrease over time. We have held Empire could reduce or terminate these benefits at any
that “[a] fiduciary must give complete and accurate time.”); Electro-Mechanical, 9 F.3d at 451; Drennan, 977
information in response to participants’ questions.” Drennan F.2d at 251.
v. Gen. Motors Corp., 977 F.2d 246, 251 (6th Cir. 1992);
accord Electro-Mechanical Corp. v. Ogan, 9 F.3d 445, 451 Defendants also never informed Plaintiffs that the
(6th Cir. 1993) (“ERISA imposes a duty upon fiduciaries to Transamerica Group Master Policy required that at least fifty
respond promptly and adequately to employee-initiated people participate for the insurance coverage to continue.
inquiries regarding the plan or any of its terms.”). Each of This important piece of information is material to potential
Defendants’ answers to Paul Winkler’s questions, however, participants evaluating a life insurance program and the plan
was extraordinarily misleading or outright false. Therefore, administrators should have disclosed it in response to
Defendants’ answers violated the requirements of Sprague, Plaintiffs’ questions concerning the conditions and
Krohn, and Pirelli. See Pirelli, 305 F.3d at 454; Krohn, 173 circumstances under which Transamerica could cancel
F.3d at 547; Sprague, 133 F.3d at 406. insurance coverage. Although no Plaintiff ever asked whether
the policy required a minimum number of insureds, it is
Defendants also suggested that Transamerica could not irrelevant that no one asked the precise question because once
cancel the policy. According to the question-and-answer an ERISA fiduciary begins affirmatively providing
sheet Defendants distributed: information not required by statute, the fiduciary may not
mislead, even if this means disclosing information that the
QUESTION: Can I continue my TWU OTP Plan after fiduciary would not otherwise need to disclose.
retirement at the same monthly flat rate?
ERISA imposes trust-like fiduciary responsibilities, see
ANSWER: Yes. The TWU OTP Plan can be Varity, 516 U.S. at 496, and a trustee “is under a duty to
continued indefinitely after retirement at communicate to the beneficiary material facts affecting the
the same monthly rate. interest of the beneficiary which he knows the beneficiary
does not know and which the beneficiary needs to know for
(J.A. at 521) (emphasis added). As recounted above, Paul his protection in dealing with a third person.” RESTATEMENT
Winkler described this exchange from one of the information (SECOND) OF TRUSTS § 173, cmt. d (1959). For this reason,
sessions: “How long is the policy good for? Policy is good “once an ERISA beneficiary has requested information from
forever until you die.” (J.A. at 531.) Actually, Transamerica an ERISA fiduciary who is aware of the beneficiary’s status
could terminate the policy at any time after three years, with and situation, the fiduciary has an obligation to convey
appropriate notice. Defendants had a duty to honestly complete and accurate information material to the
respond to questions about the plan’s termination provisions. beneficiary’s circumstance, even if that requires conveying
No. 01-4159 Gregg, et al. v. Transportation 29 30 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
information about which the beneficiary did not specifically V.
inquire.” Krohn, 173 F.3d at 547 (emphasis added); see also
In re Unisys Corp., 57 F.3d at 1264 (holding that Unisys Plaintiffs have raised a genuine issue of material fact as to
breached its fiduciary duty where it "affirmatively and whether Defendants breached their fiduciary duty by
systematically represented to its employees that once they abandoning their responsibilities, overly relying on an
retired, their medical benefits would continue for life—even untrustworthy advisor, and misleading beneficiaries. For all
though as the district court concluded in rejecting the retirees' the aforementioned reasons, we REVERSE the decision of
contract claim, the plans clearly permitted the company to district court.
terminate benefits"); Anweiler v. Am. Elec. Power Serv.
Corp., 3 F.3d 986, 991 (7th Cir.1993) (fiduciary duty to
communicate material facts affecting interests of beneficiaries
"exists when a beneficiary asks fiduciaries for information,
and even when he or she does not"); Eddy v. Colonial Life
Ins. Co., 919 F.2d 747, 750 (D.C. Cir.1990) ("At the request
of a beneficiary (and in some circumstances upon his own
initiative), a fiduciary must convey complete and correct
material information to a beneficiary."). By not explaining
the Group Master Policy’s minimum participation
requirement, Defendants did not provide full and complete
information.
Defendants thus misled Plaintiffs with respect to the size of
possible premium increases and the possibility that benefits
would decrease with age, Transamerica’s right to terminate
the plan, and the requirement that the plan maintain at least
fifty enrollees. Defendants had an affirmative obligation to
provide Plaintiffs with this material information whether or
not they asked for it. See, e.g., Pirelli Armstrong, 305 F.3d at
454; Krohn,173 F.3d at 547. The fact that Plaintiffs did
request disclosure of this material information renders
Defendants’ violations of Pirelli Armstrong and Krohn all the
more apparent. See Pirelli Armstrong, 305 F.3d at 454;
Krohn, 173 F.3d at 547.
No. 01-4159 Gregg, et al. v. Transportation 31 32 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al.
_________________ appears to add to an ERISA fiduciary’s duties in an area
already highly regulated by Congress and the Department of
CONCURRENCE Labor, and gives no clear guidance as to what fiduciaries in
_________________ this circuit must disclose to potential plan beneficiaries.
Accordingly, I concur only in the result reached by the
ALICE M. BATCHELDER, Circuit Judge, concurring in majority.
the result only. I concur in the result reached by the majority
because I believe that the plaintiffs have set forth just enough
evidence to require that a trier of fact determine whether the
Defendants breached their duty with respect to the potential
change in the amount of the premiums. However, for several
reasons I cannot simply concur in the opinion. First, I believe
the majority opinion distorts the facts, particularly with regard
to the Defendants’ reliance on experts in selecting the plan.
Second, even if the majority’s factual picture in that respect
were accepted as being correct, the majority’s creation of a
new requirement that a fiduciary may not rely on expert
advice unless the fiduciary himself has read everything that he
signs, regardless of the complexity of the document, the
expertise—or lack of expertise—of the fiduciary, or the
degree of expertise of the experts or advisors on whom the
fiduciary relies to evaluate the document for him, is
imprudent and without legal precedent.
Finally, and perhaps most importantly, I believe the
majority opinion extends this circuit’s cases of Sprague v.
General Motors Corp, 133 F.3d 388 (6th Cir. 1998), Krohn
v. Huron Mem’l Hosp., 173 F.3d 542 (6th Cir. 1999), and
James v. Pirelli Armstrong Tire Corp., 305 F.3d 439 (6th Cir.
2002), beyond their rational application in all respects except
with regard to the information disseminated about the
potential change in premium amounts. These cases stand for
the limited proposition that, if the fiduciary is providing
information on its own initiative, then it must not make any
materially misleading statements; but if it is responding to
inquiry, it must provide accurate and complete information
that bears in mind the needs of the particular beneficiary.
Ranging far afield of these limited rules, the majority opinion