William Pender v. Bank of America Corporation , 788 F.3d 354 ( 2015 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1011
WILLIAM L. PENDER; DAVID L. MCCORKLE,
Plaintiffs – Appellants,
and
ANITA POTHIER; KATHY L. JIMENEZ; MARIELA ARIAS; RONALD R.
WRIGHT; JAMES C. FABER, JR., On behalf of themselves and on
behalf of all others similarly situated,
Plaintiffs,
v.
BANK OF AMERICA CORPORATION; BANK OF AMERICA, NA; BANK OF
AMERICAN PENSION PLAN; BANK OF AMERICA 401(K) PLAN; BANK OF
AMERICA CORPORATION CORPORATE BENEFITS COMMITTEE; BANK OF
AMERICA TRANSFERRED SAVINGS ACCOUNT PLAN,
Defendants – Appellees,
and
UNKNOWN PARTY, John and Jane Does #1-50, Former Directors
of NationsBank Corporation and Current and Former Directors
of Bank of America Corporation & John & Jane Does #51-100,
Current/Former Members of the Bank of America Corporation
Corporate Benefit; CHARLES K. GIFFORD; JAMES H. HANCE, JR.;
KENNETH D. LEWIS; CHARLES W. COKER; PAUL FULTON; DONALD E.
GUINN; WILLIAM BARNETT, III; JOHN T. COLLINS; GARY L.
COUNTRYMAN; WALTER E. MASSEY; THOMAS J. MAY; C. STEVEN
MCMILLAN; EUGENE M. MCQUADE; PATRICIA E. MITCHELL; EDWARD
L. ROMERO; THOMAS M. RYAN; O. TEMPLE SLOAN, JR.; MEREDITH
R. SPANGLER; HUGH L. MCCOLL; ALAN T. DICKSON; FRANK DOWD,
IV; KATHLEEN F. FELDSTEIN; C. RAY HOLMAN; W. W. JOHNSON;
RONALD TOWNSEND; SOLOMON D. TRUJILLO; VIRGIL R. WILLIAMS;
CHARLES E. RICE; RAY C. ANDERSON; RITA BORNSTEIN; B. A.
BRIDGEWATER, JR.; THOMAS E. CAPPS; ALVIN R. CARPENTER;
DAVID COULTER; THOMAS G. COUSINS; ANDREW G. CRAIG; RUSSELL
W. MEYER-, JR.; RICHARD B. PRIORY; JOHN C. SLANE; ALBERT E.
SUTER; JOHN A. WILLIAMS; JOHN R. BELK; TIM F. CRULL;
RICHARD M. ROSENBERG; PETER V. UEBERROTH; SHIRLEY YOUNG; J.
STEELE ALPHIN; AMY WOODS BRINKLEY; EDWARD J. BROWN, III;
CHARLES J. COOLEY; ALVARO G. DE MOLINA; RICHARD M.
DEMARTINI; BARBARA J. DESOER; LIAM E. MCGEE; MICHAEL E.
O'NEILL; OWEN G. SHELL, JR.; A. MICHAEL SPENCE; R. EUGENE
TAYLOR; F. WILLIAM VANDIVER, JR.; JACKIE M. WARD; BRADFORD
H. WARNER; PRICEWATERHOUSE COOPERS, LLP,
Defendants.
Appeal from the United States District Court for the
Western District of North Carolina, at Charlotte. Graham
C. Mullen, Senior District Judge. (3:05−cv−00238−GCM)
Argued: January 27, 2015 Decided: June 8, 2015
Before KEENAN, WYNN, and FLOYD, Circuit Judges.
Reversed in part, vacated in part, and remanded by
published opinion. Judge Wynn wrote the opinion, in which
Judge Keenan and Judge Floyd joined.
ARGUED: Eli Gottesdiener, GOTTESDIENER LAW FIRM, PLLC,
Brooklyn, New York, for Appellants. Carter Glasgow
Phillips, SIDLEY AUSTIN, LLP, Washington, D.C., for
Appellees. ON BRIEF: Thomas D. Garlitz, THOMAS D. GARLITZ,
PLLC, Charlotte, North Carolina, for Appellants. Irving M.
Brenner, MCGUIREWOODS LLP, Charlotte, North Carolina; Anne
E. Rea, Christopher K. Meyer, Chicago, Illinois, Michelle
B. Goodman, David R. Carpenter, SIDLEY AUSTIN LLP, Los
Angeles, California, for Appellees.
2
WYNN, Circuit Judge:
In this Employee Retirement Income Security Act of 1974
(“ERISA”) case, an employer was deemed to have wrongly
transferred assets from a pension plan that enjoyed a separate
account feature to a pension plan that lacked one. Although the
transfers were voluntary and the employer guaranteed that the
value of the transferred assets would not fall below the pre-
transfer amount, an Internal Revenue Service audit resulted in a
determination that the transfers nonetheless violated the law.
Plaintiffs, who held such separate accounts and agreed to
the transfers, brought suit under ERISA and sought disgorgement
of, i.e., an accounting for profits as to, any gains the
employer retained from the transaction. The district court
dismissed their case, holding that they lacked statutory and
Article III standing. For the reasons that follow, we disagree
and hold that Plaintiffs have both statutory and Article III
standing. Further, we hold that Plaintiffs’ claim is not time-
barred. Accordingly, we reverse and remand the matter for
further proceedings.
I.
A.
3
In 1998, NationsBank 1 (“the Bank”) amended its defined-
contribution plan (“the 401(k) Plan”) to give eligible
participants a one-time opportunity to transfer their account
balances to its defined-benefit plan (“the Pension Plan”). The
Pension Plan provided that participants who transferred their
account balances would have the same menu of investment options
that they did in the 401(k) Plan. Further, the Bank amended the
Pension Plan to provide the guarantee that participants who
elected to make the transfer would receive, at a minimum, the
value of the original balance of their 401(k) Plan accounts
(“the Transfer Guarantee”).
The 401(k) Plan participants’ accounts reflected the actual
gains and losses of their investment options. In other words,
the money that 401(k) Plan participants directed to be invested
in particular investment options was actually invested in those
investment options, and 401(k) Plan participants’ accounts
reflected the investment options’ net performance.
By contrast, Pension Plan participants’ accounts reflected
the hypothetical gains and losses of their investment options.
Although Pension Plan participants selected investment options,
1
In September 1998, NationsBank merged with BankAmerica
Corporation. The resulting entity was named Bank of America
Corporation. Here, “the Bank” collectively refers to the
defendants.
4
this investment was purely notional. By design, Pension Plan
participants’ selected investment options had no bearing on how
Pension Plan assets were actually invested. Instead, the Bank
invested Pension Plan assets in investments of its choosing, 2
periodically crediting each Pension Plan participant’s account
with the greater of (1) the hypothetical performance of the
participant’s selected investment option, or (2) the Transfer
Guarantee.
Plaintiffs William Pender and David McCorkle (collectively
with those similarly situated, “Plaintiffs”) are among the
eligible participants who elected to transfer their account
balances. Participants who elected to transfer their 401(k)
Plan balances to the Pension Plan may not have appreciated the
difference between the plans, particularly if they maintained
their original investment options. But for the Bank, each
transfer represented an opportunity to make money. 3 As long as
2
The record does not state precisely what the Bank invested
in, but nothing in the Pension Plan documents required the Bank
to invest in the menu of investment options available to the
401(k) and Pension Plan participants.
3
In communications to 401(k) Plan participants leading up
to the transfers, the Bank explained that “[e]xcess proceeds
would decrease plan costs, saving money for the company.” J.A.
364. See also J.A. 375 (“What’s in it for the Company? . . .
When associates take advantage of the one-time 401(k) Plan
transfer option, there is a potential savings to the company—the
more money transferred, the greater the savings potential.”).
Although the Bank characterized the primary effect of the
(Continued)
5
the Bank’s actual investments provided a higher rate of return
than Pension Plan participants’ hypothetical investments, the
Bank would retain the spread. And although the spread generated
by each account might have been relatively small, in the
aggregate and over time, this strategy could yield substantial
gains for the Bank. 4
B.
To illustrate by way of example, consider 401(k) Plan
participants Jack and Jill. They each have account balances of
$100,000, and each has selected the same investment option,
which generates a 60-percent return over a 10-year period. Jack
decides to keep his 401(k) Plan account, and Jill decides to
make the transfer to the Pension Plan.
When Jill transfers her assets to the Pension Plan, she
selects the same 60-percent-return investment option she had in
the 401(k) Plan. But instead of actually investing the $100,000
Jill transferred to the Pension Plan according to her selected
investment option, the Bank periodically notes the value that
transfer option as generating “savings,” the difference between
savings and profit in this context is merely semantic.
Regardless of which term is used, the Bank made money.
4
The Bank expressly noted this in its communication to
transfer-eligible plan participants. J.A. 375 (“[T]he more
money transferred, the greater the savings potential.”)
6
her assets would have gained on her selected investment options
but actually invests it in an investment portfolio that
generates a 70-percent return over 10 years.
Fast forward ten years: Jack’s actual investment of the
initial $100,000 generates $60,000 in actual returns. Jill’s
hypothetical investment of the $100,000 she transferred from the
401(k) Plan to the Pension Plan generates $60,000 in investment
credits. The accounts are both valued at $160,000.
Jack’s $160,000 401(k) Plan account balance represents the
full value of the initial balance plus his actual investment
performance. But the $160,000 balance of Jill’s Pension Plan
account does not represent the full value of the $100,000 that
she transferred from the 401(k) Plan and the actual investment
performance of that money. Because the Bank actually invested
that money in investment options with a 70-percent return over
the ten-year period, it generated $70,000. Due to the
difference between the Bank’s actual rate of return and the rate
of return of Jill’s selected investment option, the Bank retains
$10,000 after it credits her Pension Plan account with $60,000.
The spread between the actual investment returns ($70,000) and
the hypothetical returns ($60,000) may be small on the
individual account level ($10,000 for Jill’s Pension Plan
account). But it is greater than the amount of money the Bank
stands to gain from Jack’s account ($0). And with the thousands
7
of Jills working for a large employer like the Bank, it has the
potential to add up.
C.
In the wake of a June 2000 Wall Street Journal article
covering these types of retirement plan transfers, 5 the Internal
Revenue Service opened an audit of the Bank’s plans. In 2005,
the IRS issued a technical advice memorandum, in which it
concluded that the transfers of 401(k) Plan participants’ assets
to the Pension Plan between 1998 and 2001 violated Internal
Revenue Code § 411(d)(6) and Treasury Regulation § 1-411(d)-4,
Q&A-3(a)(2). According to the IRS, the transfers impermissibly
eliminated the 401(k) Plan participants’ “separate account
feature,” meaning that participants were no longer being
credited with the actual gains and losses “generated by funds
contributed on the participant[s’] behalf.” J.A. 518.
In May 2008, the Bank and the IRS entered into a closing
agreement. Under the terms of the agreement, the Bank (1) paid
a $10 million fine to the U.S. Treasury, (2) set up a special-
purpose 401(k) plan, (3) and transferred Pension Plan assets
that were initially transferred from the 401(k) Plan to the
special-purpose 401(k) plan. The Bank also agreed to make an
5
Ellen E. Schultz, Firms Expand Uses of Retirement Funds:
Bank of America Offers Staff Rollovers Into Pension Plan, Wall
St. Journal, June 19, 2000, at A2.
8
additional payment to participants who had elected to transfer
their assets from the 401(k) Plan to the Pension Plan if the
cumulative total return of their hypothetical investments was
less than a certain amount. 6 All settlement-related transfers
were finalized by 2009.
D.
Plaintiffs filed their original complaint against the Bank
in the U.S. District Court for the Southern District of Illinois
in 2004, alleging several ERISA violations stemming from plan
amendments and transfers. The Bank moved under 28 U.S.C.
§ 1404(a) to change venue, and the case was transferred to the
Western District of North Carolina. There, the district court
dismissed three of the four counts contained in the complaint.
See McCorkle v. Bank of America Corp., 688 F.3d 164, 169 n.4,
177 (4th Cir. 2012).
Plaintiffs’ lone remaining claim alleges a violation of
ERISA § 204(g)(1), 29 U.S.C. § 1054(g)(1), 7 which states that an
ERISA-plan participant’s “accrued benefit” “may not be decreased
by an amendment of the plan” unless specifically provided for in
6
For a more detailed discussion of how the Bank determined
whether participants qualified for this additional payment, see
Pender, 2013 WL 4495153, at *4.
7
This opinion uses a parallel citation to the United States
Code and the ERISA code the first time a statute is cited and
thereafter refers only to the ERISA code citation.
9
ERISA or regulations promulgated pursuant to ERISA. According
to Plaintiffs, the Bank improperly decreased the accrued benefit
of the separate account feature. Relying, at least in part,
upon the IRS’s declaration that the transfers from the 401(k)
Plan to the Pension Plan violated both Treasury Regulation
§ 1.411(d)-4, Q&A-3(a)(2) and the statute it implements, I.R.C.
§ 411(d)(6)(A) 8, Plaintiffs sought to use ERISA’s civil
enforcement provision, ERISA § 502(a), 29 U.S.C. § 1132(a), to
recover the profits the Bank retained after it transferred the
effected Pension Plan accounts to the special-purpose 401(k)
plan.
At the hearing on the parties’ cross-motions for summary
judgment, the Bank argued that (1) its closing agreement with
the IRS stripped Plaintiffs of Article III standing because it
restored the separate account feature, and (2) the statute of
limitations barred Plaintiffs’ claims. Plaintiffs countered
with a request for declarations that (1) they are entitled to
any spread between what they were paid and the actual investment
gains of the assets that were originally in the 401(k) Plan, and
(2) the agreement between the Bank and the IRS did not
extinguish their ERISA claims. The district court granted the
8
I.R.C. § 411(d)(6)(A) is the Internal Revenue Code
analogue to ERISA § 204(g)(1).
10
Bank’s motion, denied Plaintiffs’ motion, and dismissed the case
on the basis that Plaintiffs lacked standing. Pender v. Bank of
Am. Corp., No. 3:05-CV-00238-GCM, 2013 WL 4495153, at *11
(W.D.N.C. Aug. 19, 2013). Plaintiffs appealed.
II.
We review a district court’s disposition of cross-motions
for summary judgment de novo, examining each motion seriatim.
Libertarian Party of Virginia v. Judd, 718 F.3d 308, 312 (4th
Cir.), cert. denied, 134 S. Ct. 681 (2013). We view the facts
and inferences arising therefrom in the light most favorable to
the non-moving party to determine whether there exists any
genuine dispute of material fact or whether the movant is
entitled to judgment as a matter of law. Id. And we review
legal questions regarding standing de novo. David v. Alphin,
704 F.3d 327, 333 (4th Cir. 2013).
III.
On appeal, Plaintiffs contend that they are entitled to the
full value of the investment gains the Bank realized using the
assets transferred to the Pension Plan. To assert such a claim
under ERISA, Plaintiffs must possess both statutory and Article
III standing, David, 704 F.3d at 333, which we now respectively
address.
11
A.
To show statutory standing, Plaintiffs must identify the
portion of ERISA that entitles them to bring the claim for the
relief they seek. Plaintiffs argue that ERISA § 502(a)(1)(B),
which allows a beneficiary to recover benefits due under the
terms of the plan, enables them to bring their claim. In the
alternative, they argue that Sections 502(a)(2) and 502(a)(3)
also entitle them to the relief they seek. We consider each.
1.
Under ERISA § 502(a)(1)(B), “[a] civil action may be
brought by a participant or a beneficiary to recover benefits
due to him under the terms of his plan, to enforce his rights
under the terms of the plan, or to clarify his rights to future
benefits under the terms of the plan.” (emphases added).
Plaintiffs argue that ERISA § 502(a)(1)(B) is the proper section
under which to bring a claim for benefits due based on a
misapplied formula and that the Bank “‘misapplied’ [the]
formula” when it failed to administer the plan in a manner
“consistent with ERISA’s minimum standards.” Appellants’ Br. at
45-46 (emphasis omitted). However, CIGNA Corp. v. Amara, 131 S.
Ct. 1866 (2011), explicitly precludes them from using this
provision to recover the relief they seek.
In Amara, as here, the plaintiffs sought to enforce the
plan not as written, but as it should properly be enforced under
12
ERISA. The district court ordered the terms of the plan
“reformed” and then enforced the changed plan. Id. at 1866.
But as the Supreme Court underscored, “[t]he statutory language
speaks of enforcing the terms of the plan, not of changing
them.” Id. at 1876-77 (internal quotation marks, citation, and
emphasis omitted). Indeed, “nothing suggest[ed] that
[Section 502(a)(1)(B)] authorizes a court to alter those terms .
. . where that change, akin to the reform of a contract, seems
less like the simple enforcement of a contract as written and
more like an equitable remedy.” Id. at 1877.
Here, as in Amara, Plaintiffs’ requested remedy would
require the court to do more than simply enforce a contract as
written. Rather, as we will soon discuss, what they ask sounds
in equity. Accordingly, Section 502(a)(1)(B) provides no avenue
for bringing their claim.
2.
Under ERISA § 502(a)(2), a plan beneficiary may bring a
civil action for “appropriate relief” when a plan fiduciary
breaches its statutorily imposed “responsibilities, obligations,
or duties,” ERISA § 409, 29 U.S.C. § 1109. Plaintiffs argue
that they may seek relief under Section 502(a)(2) because the
Bank breached a fiduciary obligation by failing to “act with the
best interest of participants in mind” and by “ignor[ing] the
terms of the amendments to the extent the amendments were
13
inconsistent with ERISA.” J.A. 236. However, again Plaintiffs’
claim is precluded by Supreme Court precedent because Pegram v.
Herdrich, 530 U.S. 211 (2000), bars recovery under this
provision.
Unlike traditional trustees who are bound by the duty of
loyalty to trust beneficiaries, ERISA fiduciaries may wear two
hats. “Employers, for example, can be ERISA fiduciaries and
still take actions to the disadvantage of employee
beneficiaries, when they act as employers (e.g., firing a
beneficiary for reasons unrelated to the ERISA plan), or even as
plan sponsors (e.g., modifying the terms of a plan as allowed by
ERISA to provide less generous benefits).” Pegram, 530 U.S. at
225. Thus, the “threshold question” we must ask here is whether
the Bank acted as a fiduciary when “taking the action subject to
complaint.” Id. at 226.
Under ERISA, a person is a fiduciary vis-à-vis a plan “to
the extent” that he (1) “exercises any discretionary authority
or discretionary control respecting management of such plan or .
. . its assets,” (2) “renders investment advice for a fee or
other compensation,” or (3) “has any discretionary authority or
discretionary responsibility in the administration of such
plan.” ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A). Accordingly,
the Bank is a fiduciary only to the extent that it acts in one
of these three capacities.
14
As we read Count IV of Plaintiffs’ Fourth Amended
Complaint, i.e., Plaintiffs’ one remaining claim, they assert
two fiduciary breaches: (1) the Bank breached a fiduciary duty
when it amended the 401(k) Plan and Pension Plan to permit the
transfers; and (2) the Bank breached a fiduciary duty when it
permitted the voluntary transfers between the plans. Neither
holds water.
The first claim fails because “[p]lan sponsors who alter
the terms of a plan do not fall into the category of
fiduciaries.” Lockheed Corp. v. Spink, 517 U.S. 882, 890
(1996). Instead, these actions are analogous to those of trust
settlors. Id.
The second claim fails for the simple reason that the Bank
did not exercise discretion regarding the transfers. The
transfers between the 401(k) Plan and the Pension Plan occurred
only for those plan participants who affirmatively and
voluntarily directed the Bank to take such action. Because
following participants’ directives did not involve discretionary
plan administration so as to trigger fiduciary liability as
required under ERISA § 3(21)(A), that action cannot support an
ERISA § 502(a)(2) claim.
3.
Finally, under Section 502(a)(3), a plan beneficiary may
obtain “appropriate equitable relief” to redress “any act or
15
practice which violates” ERISA provisions contained in a certain
subchapter of the United States Code. To determine whether
Section 502(a)(3) applies to these facts, we must answer two
questions: (1) Did the transfers violate a covered ERISA
provision? And if so, (2) does the relief Plaintiffs seek
constitute “appropriate equitable relief” within the meaning of
the statute? The answer to both questions is yes.
i.
ERISA § 204(g)(1), which is also known as the anti-cutback
provision, is a covered provision under Section 502(a)(3). It
provides that a plan amendment may not decrease a participant’s
“accrued benefit.” ERISA § 3(23)(B), 29 U.S.C. § 1002(23)(B),
defines the accrued benefit in a 401(k) plan as “the balance of
the individual’s account.” In the technical advice memorandum,
the IRS concluded that the transfers between the 401(k) Plan and
the Pension Plan violated I.R.C. § 411(d)(6) and Treasury
Regulation § 1.411(d)-4, Q&A-3. See J.A. 519. I.R.C.
§ 411(d)(6) provides—in language nearly identical to ERISA
§ 204(g)(1)—that a plan amendment may not decrease a
participant’s “accrued benefit.” Treasury Regulation §
1.411(d)-4, Q&A-3(a)(2), which implements I.R.C. § 411(d)(6),
further provides that the “separate account feature of an
employee’s benefit under a defined contribution plan” is a
protected benefit within the meaning of I.R.C. § 411(d)(6).
16
According to the IRS’s interpretation of the relevant
statutes and regulations, “‘separate account feature’ describes
the mechanism by which a [defined contribution plan] accounts
for contributions and actual earnings/losses thereon allocated
to a specific defined contribution plan participant with the
risk of investment experience being borne by the participant.”
J.A. 517. In a defined contribution plan like the 401(k) Plan,
assets are actually invested in participants’ chosen investment.
401(k) Plan participants bear the investment risk, but this is
unproblematic because their account balances are identical to
the actual performance of their actual investments.
By contrast, because Pension Plan participants’
“investments” are hypothetical, there is no guaranteed
correlation between their account balances and the assets
available to cover Pension Plan liabilities. Depending on the
success of the Bank’s actual investments, the Pension Plan’s
assets may lack sufficient funds to satisfy all of its
liabilities (or may run a surplus).
Turning to a textual analysis, we insert the relevant
language from Section 3(23)(B) into Section 204(g)(1): “The
[balance of the individual’s account] may not be decreased by an
amendment of the plan . . . .” The Transfer Guarantee provides
assurances that individuals will receive no less than the
monetary value of their 401(k) Plan accounts at the time of
17
transfer. But the Bank’s promise that the value of the
transferred funds will not decrease below a certain threshold—
even if, for example, it invests Pension Plan assets poorly and
loses the money—is not the same as actually not decreasing the
account balance. It brings to mind the (instructive, even if
distinguishable) difference between making a loan that the
borrower promises to repay and leaving your money in your bank
account. Assuming all goes well, the end result may well be the
same; but they plainly are not the same thing.
In essence, Section 204(g)(1)’s prohibition against
amendments that decrease defined contribution plan participants’
account balances is a variation on a trustee’s duty to preserve
trust property. See Restatement (Second) of Trusts § 176. An
ERISA plan sponsor is under no duty to ensure that defined
contribution plan participants do not decrease their account
balances through their own actions. But the plan sponsor cannot
take actions that decrease participant account balances.
For these reasons, and in light of the similarities between
I.R.C. § 411(d)(6) and ERISA § 204(g)(1), and the IRS’s
persuasive analysis, we hold that a defined contribution plan’s
separate account feature constitutes an “accrued benefit” that
“may not be decreased by amendment of the plan” under Section
204(g)(1). The transfers at issue here resulted in a loss of
18
the separate account feature and thus violated
Section 204(g)(1).
ii.
Although the Bank’s violation of Section 204(g)(1) is a
necessary component of Plaintiff’s claim for relief under
Section 502(a)(3), that violation alone is insufficient to
confer statutory standing. Plaintiffs must also seek
“appropriate equitable relief.” This, they do.
The Supreme Court has interpreted the term “appropriate
equitable relief,” as used in Section 502(a)(3), to refer to
“those categories of relief that, traditionally speaking (i.e.,
prior to the merger of law and equity) were typically available
in equity.” Amara, 131 S. Ct. at 1878 (quoting Sereboff v. Mid
Atl. Med. Servs., Inc., 547 U.S. 356, 361 (2006)) (internal
quotation marks omitted). Further, because Section 502(a)(3)
functions as a “safety net, offering appropriate equitable
relief for injuries caused by violations that § 502 does not
elsewhere adequately remedy,” Varity Corp. v. Howe, 516 U.S.
489, 512 (1996), equitable relief will not normally be
“appropriate” if relief is available under another subsection of
Section 502(a). Id. at 515.
Here, Plaintiffs seek the difference between (1) the actual
investment gains the Bank realized using the assets transferred
to the Pension Plan, and (2) the transferred assets’
19
hypothetical investment performance, which the Bank has already
paid Pension Plan participants. In other words, Plaintiffs seek
the profit the Bank made using their assets. This is the
hornbook definition of an accounting for profits.
An accounting for profits “is a restitutionary remedy based
upon avoiding unjust enrichment.” 1 D. Dobbs, Law of Remedies
§ 4.3(5), p. 608 (2d ed. 1993) (hereinafter Dobbs). It requires
the disgorgement of “profits produced by property which in
equity and good conscience belonged to the plaintiff.” Id. It
is akin to a constructive trust, but lacks the requirement that
plaintiffs “identify a particular res containing the profits
sought to be recovered.” Great-W. Life & Annuity Ins. Co. v.
Knudson, 534 U.S. 204, 214 n.2 (2002) (citing 1 Dobbs § 4.3(1),
at 588; id., § 4.3(5), at 608).
In Knudson, the Supreme Court expressly noted that, unlike
other restitutionary remedies, an accounting for profits is an
equitable remedy. 534 U.S. at 214 n.2. The Court also
suggested that an accounting for profits would support a claim
under Section 502(a)(3) in the appropriate circumstances. See
id. (noting that the petitioners did not claim profits produced
by certain proceeds and were not entitled to those proceeds).
This case presents those appropriate circumstances.
Unlike the petitioners in Knudson, Plaintiffs seek profits
generated using assets that belonged to them. And, as explained
20
above, Section 502(a)’s other subsections do not afford
Plaintiffs any relief. If Section 204(g)(1)’s proscription
against decreasing accrued benefits is to have any teeth, the
available remedies must be able to reach situations like the one
this case presents, i.e., where a plan sponsor benefits from an
ERISA violation, but plan participants—perhaps through luck or
agency intervention—suffer no monetary loss. See McCravy v.
Met. Life Ins. Co., 690 F.3d 176, 182–83 (4th Cir. 2012)
(“[W]ith Amara, the Supreme Court clarified that [various
equitable] remedies . . . are indeed available to ERISA
plaintiffs . . . . [O]therwise, the stifled state of the law
interpreting [Section 502(a)(3)] would encourage abuse.”).
Because it “holds the defendant liable for his profits, not for
damages,” 1 Dobbs § 4.3(5), at 611, the equitable remedy of
accounting for profits adequately addresses this concern. Cf.
Amalgamated Clothing & Textile Workers Union, AFL-CIO v.
Murdock, 861 F.2d 1406, 1413–14 (9th Cir. 1988) (holding that a
constructive trust was an “important, appropriate, and
available” remedy under Section 502(a)(3) for breach of trust,
even when plaintiffs had “received their actuarially vested plan
benefits”).
In sum, Plaintiffs have statutory standing under
Section 502(a)(3) to bring their claim.
B.
21
The Bank argues that even if it violated certain provisions
of ERISA, the district court properly granted summary judgment
because Plaintiffs lack Article III standing. The Bank argues
that the transfers from the Pension Plan to the special-purpose
401(k) plan mooted any injury.
For the federal courts to have jurisdiction, plaintiffs
must possess standing under Article III, § 2 of the
Constitution. See David, 704 F.3d at 333. There exist three
“irreducible minimum requirements” for Article III:
(1) an injury in fact (i.e., a ‘concrete and
particularized’ invasion of a ‘legally protected
interest’);
(2) causation (i.e., a ‘fairly . . . trace[able]’
connection between the alleged injury in fact and the
alleged conduct of the defendant); and
(3) redressability (i.e., it is ‘likely’ and not
merely ‘speculative’ that the plaintiff's injury will
be remedied by the relief plaintiff seeks in bringing
suit).
Sprint Commc’ns Co., L.P. v. APCC Serv., Inc., 554 U.S. 269,
273–74 (2008) (citing Lujan v. Defenders of Wildlife, 504 U.S.
555, 560–61 (1992)).
1.
Our analysis first focuses on whether Plaintiffs have
demonstrated an injury in fact. The crux of the Bank’s standing
argument is that Plaintiffs have not suffered a financial loss.
We, however, agree with the Third Circuit that “a financial loss
22
is not a prerequisite for [Article III] standing to bring a
disgorgement claim under ERISA.” Edmonson v. Lincoln Nat. Life
Ins. Co., 725 F.3d 406, 417 (3d Cir. 2013), cert. denied, 134 S.
Ct. 2291 (2014); see also Vander Luitgaren v. Sun Life Ins. Co.
of Canada, No. 09–CV–11410, 2010 WL 4722269, at *1 (D.Mass. Nov.
18, 2010) (rejecting argument that plaintiff lacked standing to
sue for disgorgement of profit earned via a retained asset
account). 9
As an initial matter, it goes without saying that the
Supreme Court has never limited the injury-in-fact requirement
to financial losses (otherwise even grievous constitutional
rights violations may well not qualify as an injury). Instead,
an injury refers to the invasion of some “legally protected
interest” arising from constitutional, statutory, or common law.
Lujan v. Defenders of Wildlife, 504 U.S. 555, 578 (1992).
Indeed, the interest may exist “solely by virtue of statutes
creating legal rights, the invasion of which creates standing.”
9
But see Kendall v. Employees Ret. Plan of Avon. Prods.,
561 F.3d 112, 119 (2d Cir. 2009). In Kendall, the Second
Circuit articulated the requirement that ERISA plaintiffs
seeking disgorgement must show individual loss. 561 F.3d 112.
But such a limitation would foreclose an action for breach of
fiduciary duty in cases where the fiduciary profits from the
breach but the plan or plan beneficiaries incur no financial
loss. ERISA, however, provides for a recovery in such cases,
and we reject such “perverse incentives.” McCravy, 690 F.3d at
183. We thus similarly reject the Second Circuit’s view.
23
Id. (internal quotation marks and citation omitted). Thus,
“standing is gauged by the specific common-law, statutory or
constitutional claims that a party presents.” Int’l Primate
Prot. League v. Adm’rs of Tulane Educ. Fund, 500 U.S. 72, 77
(1991). We therefore examine the principles that underlie
Plaintiffs’ claim for an accounting for profits under ERISA
§ 502(a)(3) to discern whether there exists a legally protected
interest.
It is blackletter law that a plaintiff seeking an
accounting for profits need not suffer a financial loss. See 1
Dobbs § 4.3(5), at 611 (“Accounting holds the defendant liable
for his profits, not damages.”); see also Restatement (Third) on
Restitution and Unjust Enrichment § 51 cmt. a (2011) (noting
that the object of an accounting “is to strip the defendant of a
wrongful gain”). Requiring a financial loss for disgorgement
claims would effectively ensure that wrongdoers could profit
from their unlawful acts as long as the wronged party suffers no
financial loss. We reject that notion. Edmonson, 725 F.3d at
415. 10
10
The district court supported its ruling that Plaintiffs
failed to satisfy Article III’s injury-in-fact requirement with
a citation to Horvath v. Keystone Health Plan East, Inc., 333
F.3d 450, 456 (2003), which it said stood for the proposition
that an ERISA plaintiff seeking disgorgement must show
individual loss. Pender, 2013 WL 4495153, at *9. Yet the Third
Circuit itself has made plain that “[n]othing in Horvath . . .
(Continued)
24
As the Third Circuit recently underscored—in a fiduciary
breach case that, while distinguishable, we nevertheless find
instructive—requiring a plaintiff seeking an accounting for
profits to demonstrate a financial loss would allow those with
obligations under ERISA to profit from their ERISA violations,
so long as the plan and plan beneficiaries suffer no financial
loss. Edmonson, 725 F.3d at 415. Such a result would be hard
to square with the overall tenor of ERISA, “a comprehensive
statute designed to promote the interests of employees and their
beneficiaries in employee benefit plans.” Ingersoll–Rand Co. v.
McClendon, 498 U.S. 133, 137 (1990) (internal quotation marks
omitted). In addition, it would directly contradict ERISA’s
provision covering liability for breach of fiduciary duty, which
requires a fiduciary who breaches “any of [his or her statutory]
responsibilities, obligations, or duties” to restore “any
profits” to the plan. ERISA § 409(a).
Finally, we note that ERISA borrows heavily from the
language and the law of trusts. See Firestone Tire & Rubber Co.
v. Bruch, 489 U.S. 101, 110 (1989) (“ERISA abounds with the
states or implies that a net financial loss is required for
standing to bring a disgorgement claim.” Edmonson, 725 F.3d at
417.
25
language and terminology of trust law.”). 11 Under traditional
trust law principles, when a trustee commits a breach of trust,
he is accountable for the profit regardless of the harm to the
beneficiary. See Restatement (Second) of Trusts § 205, cmt. h;
see also 4 Scott & Ascher on Trusts § 24.7, at 1682(5th ed.
2006) (“It is certainly true that a trustee who makes a profit
through a breach of trust is accountable for the profit. But it
is also true that a trustee is accountable for all profits
arising out of the administration of the trust, regardless of
whether there has been a breach of trust.”).
By proscribing plan amendments that decrease plan
participants’ accrued benefits—i.e., harm beneficiaries’
existing rights—ERISA functionally imports traditional trust
principles. Here, these principles dictate that plan
beneficiaries have an equitable interest in profits arrived at
by way of a decrease in their benefits. 12
11
Courts have also looked to trust principles to answer
questions regarding Article III standing in appropriate cases.
E.g., Scanlan, 669 F.3d at 845 (“[W]e see no reason why
canonical principles of trust law should not be employed when
determining the nature and extent of a discretionary
beneficiary’s interest for purposes of an Article III standing
analysis.”).
12
Accord United States v. $4,224,958.57, 392 F.3d 1002,
1005 (9th Cir. 2004) (holding that if claimants proved their
constructive trust claim they would have an equitable interest
in the defendant property, which would provide them with Article
III standing).
26
In sum, for standing purposes, Plaintiffs incurred an
injury in fact, i.e., an invasion of a legally protected
interest, because they “suffered an individual loss, measured as
the ‘spread’ or difference between the profit the [Bank] earned
by investing the retained assets and the [amount] it paid to
[them].” Edmonson, 725 F.3d at 417.
2.
Continuing the Article III standing analysis, Plaintiffs
satisfy the causation and redressability requirements. But for
the Bank’s improper retention of profits, Plaintiffs would not
have suffered an injury in fact. And the relief Plaintiffs seek
is not speculative in nature; the Bank invested those assets,
and the profits made by those investments should be readily
ascertainable.
3.
The Bank argues that even if Plaintiffs had Article III
standing at the time they filed the suit, its closing agreement
with the IRS restored any loss of the separate account feature
and mooted Plaintiffs’ claims. Here, too, we disagree.
The Supreme Court has repeatedly referred to mootness as
“the doctrine of standing set in a time frame.” Friends of the
Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167,
170 (2000) (quoting Arizonans for Official English v. Arizona,
520 U.S. 43, 68 (1997)). If a live case or controversy ceases
27
to exist after a suit has been filed, the case will be deemed
moot and dismissed for lack of standing. Lewis v. Cont’l Bank
Corp., 494 U.S. 472, 477 (1990). But “[a] case becomes moot
only when it is impossible for a court to grant any effectual
relief whatever to the prevailing party.” Knox v. Serv.
Employees Int’l Union, Local 1000, 132 S. Ct. 2277, 2287 (2012)
(quoting Erie v. Pap’s A.M., 529 U.S. 277, 287 (2000) (internal
quotation marks omitted)) (emphasis added).
The Bank rightly notes that its closing agreement with the
IRS restored Plaintiffs’ separate account feature. That
restoration, however, did not moot the case. Plaintiffs contend
that the Bank retained a profit, even after it restored the
separate account feature to Plaintiffs and paid a $10 million
fine to the IRS. Defendants do not rebut this argument, noting
only that there has been no discovery to this effect. If an
accounting ultimately shows that the Bank retained no profit,
the case may well then become moot. “But as long as the parties
have a concrete interest, however small, in the outcome of the
litigation, the case is not moot.” Ellis v. Bhd. of Ry.,
Airline & S.S. Clerks, Freight Handlers, Exp. & Station
Employees, 466 U.S. 435, 442 (1984) (citing Powell v.
McCormack, 395 U.S. 486, 496–98 (1969)).
In sum, we hold that Plaintiffs have Article III standing
to bring their claims.
28
IV.
The Bank argues that even if Plaintiffs have standing,
their claims are time-barred by the applicable statute of
limitations. To determine what the applicable statute of
limitations is, we engage in a three-part analysis. First, we
identify the statute of limitations for the state claim most
analogous to the ERISA claim at issue here. Second, because of
the 28 U.S.C. § 1404(a) transfer, we must determine whether the
Fourth Circuit’s or the Seventh Circuit’s choice-of-law rules
apply. And third, we apply the relevant choice-of-law rules to
determine which state’s statute of limitations applies.
A.
“Statutes of limitations establish the period of time
within which a claimant must bring an action.” Heimeshoff v.
Hartford Life & Acc. Ins. Co., 134 S. Ct. 604, 610 (2013). When
ERISA does not prescribe a statute of limitations, courts apply
the most analogous state-law statute of limitations. White v.
Sun Life Assur. Co., 488 F.3d 240, 244 (4th Cir. 2007),
abrogated on other grounds by Heimeshoff, 134 S. Ct. 604.
Although the parties have suggested that the statute of
limitations for contract claims is most analogous, we disagree.
It would be incongruous to hold that Plaintiffs are unable to
pursue relief under Section 502(a)(1)(B) because their claim
29
sounds in equity instead of contract, and then apply the statute
of limitations for a breach of contract claim.
In our view, the most analogous statute of limitations is
that for imposing a constructive trust. As noted above, the
equitable remedy of an accounting for profits is akin to a
constructive trust. Knudson, 534 U.S. at 214 n.2.
Both North Carolina and Illinois recognize such remedies.
In North Carolina, a constructive trust may be “imposed by
courts of equity to prevent the unjust enrichment of the holder
of title to, or of an interest in, property which such holder
acquired through . . . circumstance[s] making it inequitable for
him to retain it against the claim of the beneficiary of the
constructive trust.” Variety Wholesalers, Inc. v. Salem
Logistics Traffic Servs., LLC, 723 S.E.2d 744, 751 (N.C. 2012)
(quoting Wilson v. Crab Orchard Dev. Co., 171 S.E.2d 873, 882
(N.C. 1970)). Likewise, Illinois’s highest court has stated
that “[w]hen a person has obtained money to which he is not
entitled, under such circumstances that in equity and good
conscience he ought not retain it, a constructive trust can be
imposed to avoid unjust enrichment.” Smithberg v. Illinois Mun.
Ret. Fund, 735 N.E.2d 560, 565 (Ill. 2000). Furthermore,
neither state requires wrongdoing to impose a constructive
trust. See id. (citing several cases); Houston v. Tillman, 760
30
S.E.2d 18, 21–22 (N.C. Ct. App. 2014) (citing Variety
Wholesalers, Inc., 723 S.E.2d at 751–52).
In Illinois, the applicable statute of limitations is five
years. Frederickson v. Blumenthal, 648 N.E.2d 1060, 1063 (Ill.
App. Ct. 1995) (citing 735 Ill. Comp. Stat. 5/13-205; Chicago
Park District v. Kenroy, Inc., 374 N.E.2d 670 (Ill. App. Ct.
1978), aff’d in part, rev’d in part by 402 N.E.2d 181 (Ill.
1980)). In North Carolina, a ten-year statute of limitations
applies to “[a]ctions seeking to impose a constructive trust or
to obtain an accounting.” Tyson v. N. Carolina Nat. Bank, 286
S.E.2d 561, 564 (N.C. 1982).
B.
We next turn to the question of which circuit’s choice-of-
law rules apply. Plaintiffs initially filed this case in the
District Court for the Southern District of Illinois. The Bank
moved, pursuant to 28 U.S.C. § 1404(a), to change the venue of
the case by having it transferred to the District Court for the
Western District of North Carolina. We must therefore determine
whether the choice-of-law rules of the transferor court or those
of the transferee court apply.
The majority of circuits to consider the issue apply the
transferor court’s choice-of-law rules. See, e.g., Hooper v.
Lockheed Martin Corp., 688 F.3d 1037, 1046 (9th Cir. 2001); In
re Ford Motor Co., 591 F.3d 406, 413 n.15 (5th Cir. 2009);
31
Olcott v. Delaware Flood Co., 76 F.3d 1538, 1546-47 (10th Cir.
1996; Eckstein v. Balcor Film Investors, 8 F.3d 1121, 1127 (7th
Cir. 1993). 13 This conclusion makes sense: “The legislative
history of [Section] 1404(a) certainly does not justify the
rather startling conclusion that one might get a change of law
as a bonus for a change of venue.” Van Dusen v. Barrack, 376
U.S. 612, 635-36 (1964) (internal quotation marks omitted). We
join the majority of our sister circuits and hold that the
transferor court’s choice-of-law rules apply when a case has
been transferred pursuant to 28 U.S.C. § 1404(a). Accordingly,
the Seventh Circuit’s choice-of-law rules apply here.
C.
Under the Seventh Circuit’s choice-of-law rules, we look to
the forum state “as the starting point.” Berger v. AXA Network
LLC, 459 F.3d 804, 813 (7th Cir. 2006). But “[i]f another state
with a significant connection to the parties and to the
transaction has a limitations period that is more compatible
with the federal policies underlying the federal cause of
action, that state’s limitations law ought to be employed
13
But see Lanfear v. Home Depot, Inc., 536 F.3d 1217, 1223
(11th Cir. 2008) (holding that the transferee court may apply
its own choice-of-law rules when the case involves interpreting
federal law); Menowitz v. Brown, 991 F.2d 36, 41 (2d Cir. 1993)
(same).
32
because it furthers, more than any other option, the intent of
Congress when it created the underlying right.” Id.
Here, although Illinois may be the forum state, see Atl.
Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 134
S. Ct. 568, 582-83 (2013) (noting that the “state law applicable
in the original court also appl[ies] in the transferee court”
unless a Section 1404(a) motion is “premised on the enforcement
of a valid forum-selection clause”); J.A. 462-64 (memorandum and
order discussing reasons for granting the Bank’s motion to
change venue), it is clear to us that North Carolina has a
“significant connection” to the dispute for the same reasons for
which the district court granted the Bank’s Section 1404(a)
motion: “the decision to ‘permit’ the ‘voluntary’ transfer of
401(k) Plan assets to the converted cash balance plan took place
in the Western District of North Carolina” and “virtually all
the relevant witnesses reside in the Western District of North
Carolina.” J.A. 462-64.
Further, the Pension Plan contains a choice-of-law
provision applying North Carolina law when federal law does not
apply. See Berger, 459 F.3d at 813–14 (considering a choice-of-
law clause as a non-controlling but relevant factor in selecting
a limitations period). Finally, North Carolina’s ten-year
limitations period is “more compatible with the federal
policies” underlying ERISA than Illinois’s five-year limitations
33
period; the longer period provides aggrieved plaintiffs with
more opportunities to advance one of ERISA’s core policies: “to
protect . . . the interests of participants in employee benefit
plans and their beneficiaries . . . by providing for appropriate
remedies, sanctions, and ready access to the Federal courts.”
29 U.S.C. § 1001(b).
The first of the transfers in question took place in 1998.
Plaintiffs filed suit in 2004, a full four years before the ten-
year statute of limitations would have run. Accordingly,
Plaintiffs’ claims are not time-barred by the applicable ten-
year limitations period. The statute of limitations therefore
cannot serve as a basis for affirming the district court’s grant
of summary judgment to the Bank.
V.
For the foregoing reasons, we reverse the district court’s
grant of summary judgment in favor of the Bank, vacate that
portion of the district court’s order denying Plaintiffs’ motion
for summary judgment based on its erroneous standing
determination, and remand for further proceedings.
REVERSED IN PART,
VACATED IN PART,
AND REMANDED
34