Mealey's (July 13, 2016, 1:41 PM EDT) -- NEW ORLEANS — A Fifth Circuit U.S. Court of Appeals panel on July 11 affirmed dismissal of claims for breach of fiduciary duty and declaratory, equitable and injunctive relief against Acme Building Brands Inc. but allowed claims to continue against Berkshire Hathaway Inc., which purchased Acme’s parent company, in an Employee Retirement Income Security Act suit over reductions in Acme’s retirement plans (Judy Hunter, et al. v. Berkshire Hathaway Inc., et al., No. 15-10854, 5th Cir.; 2016 U.S. App. LEXIS 12744).
(Opinion available. Document #54-160810-001Z.)
The panel found that a Texas federal judge’s dismissal of claims for breach of fiduciary duty and declaratory, equitable and injunctive relief against Acme were appropriate. The panel also ruled that claims against Berkshire Hathaway Inc., which purchased Acme’s parent company, can proceed, except for a derivative breach of fiduciary duties claim.
In 2000, Berkshire bought Justin Industries Inc. At the time, Justin’s subsidiary, Acme, provided eligible employees with certain retirement benefits, including the ability to participate in a company pension plan, a defined benefit plan funded entirely by Acme, or an individual 401(k) plan, a defined contribution plan. Acme matched 50 percent of an employee’s contributions to his or her 401(k) plan on an annual basis, up to 5 percent of the employee’s compensation.
Committees
Acme was the named sponsor and fiduciary of both plans and delegated administration of both plans to two committees, the 401(k) Plan Investment/Administrative Committee and the Pension Plan Retirement/Administrative Committee.
In conjunction with Berkshire’s purchase of Justin, the parties executed an agreement and plan of merger. Section 5.7 of the merger agreement stipulates that Berkshire will honor, and cause Acme to honor, all employee benefits plans and other employment consulting, benefit, compensation or severance agreements, arrangements and policies in accordance with their terms. It also provides that Berkshire “will not cause” Acme to reduce any benefits to employees, reduce any benefit accruals pursuant to any defined benefit plans or reducer employer contribution to any defined contribution pension plans.
In 2006, Berkshire allegedly contacted Acme about the possibility of imposing a “hard freeze” on the pension plan that would eliminate any future accruals of benefits for participants and preclude participation in the pension plan by new employees. After receiving advice from outside ERISA counsel, Acme advised Berkshire that a hard freeze would violate Section 5.7 of the merger agreement and ERISA. Berkshire dropped the issue until summer 2012, when it told Acme that it wanted to move forward with reducing retirement benefits.
During the 2012 discussions, Acme allegedly discovered that it had mistakenly reduced the 401(k) plan’s company matching contribution from 50 percent to 25 percent for 2010 and 2011. Acme informed Berkshire that such a reduction was not permitted under Section 5.7 of the merger agreement. Berkshire directed Acme to not make any retroactive correction and further ordered that Acme not prospectively restore the company match to 50 percent. Accordingly, Acme’s matching contribution remained at 25 percent through 2013. In January 2013, the plaintiffs contend that Acme was forced by Berkshire to “adopt a ‘soft freeze’” immediately. Effective March 1, 2013, new employees were prevented from participating in the pension plan.
Ultimatum
In 2014, Berkshire allegedly again contacted Acme about reducing or eliminating benefits in Acme’s retirement plans. The committees concluded that Section 5.7 of the merger agreement unambiguously precluded Acme from implementing a “hard freeze” on the pension plan and prevented Acme from making the company contributions reduction requested by Berkshire and mistakenly implemented in 2010 and 2011 and maintained through 2013.
The 401(k) and pension committees sent a letter to Acme’s board of directors demanding that Acme retroactively restore the 50 percent matching contributions for 2010-2013. The letter threatened legal action if Acme did not make the requested payments.
Berkshire allegedly responded by directing Acme President and CEO Dennis Knautz to give the committees an ultimatum: either agree to an immediate “hard freeze” of the pension plan and restore the 401(k) plan’s employer matching contribution to 50 percent with the caveat that it could be changed any time after 2014 or agree to a “hard freeze” of the pension plan to be effective in five years and leave the 401(k) employer match at 25 percent. Acme eventually chose the first option and amended the pension plan on Aug. 11, 2014.
After that, Judy Hunter, Anita Gray and Bobby Lynn Allen, current and retired employees of Acme, sued Acme and Berkshire. The plaintiffs, as plan participants and fiduciaries, sought declaratory and injunctive relief and attorney fees and costs on behalf of themselves and others similarly situated. They sought declaratory relief under Section 502(a)(3) of ERISA, alleging that the terms of the plans were amended by Section 5.7 of the merger agreement to restrict changes to the plans and that the purported amendment to the plans dated Aug. 11, 2014, violated the retirement plans as amended by the merger agreement.
Fiduciary Claims
The plaintiffs also alleged that Acme breached its fiduciary duties under ERISA and that Berkshire knowingly participated in Acme’s alleged breaches of fiduciary duties. They also asserted an alternative breach of contract claim against Berkshire. The defendants moved to dismiss all claims. U.S. Judge Terry R. Means of the Northern District of Texas granted the motion and dismissed all claims with prejudice. The plaintiffs appealed the dismissal of all ERISA-related claims, but not the dismissal of their breach of contract claim against Berkshire.
In an opinion written by Circuit Judge Edith Brown Clement, the Fifth Circuit panel disagreed with the plaintiffs’ claim that Acme’s actions were contrary to the plans’ terms, as amended by the merger agreement.
“Section 5.7 of the merger agreement expressly allows Acme to ‘amend, modify or terminate any individual Company Plans in accordance with the terms of such Plans and applicable law,’” Judge Clement wrote. “Further, the disputed provisos . . . do nothing to restrict Acme from amending, modifying or terminating any of the plans. . . .
“Accordingly, plaintiffs have failed to plead a plausible claim to relief that Acme acted inconsistent with the plans when it adopted the amendment to the Pension Plan in August 2014 and did not retroactively increase its 401(k) matching contributions.”
Dismissal ‘Appropriate’
The panel also agreed with Judge Means that the plaintiffs failed to state plausible claims for breaches of fiduciary duties against Acme, saying Acme “acted akin to a settler of a trust, rather than in a fiduciary capacity, when it implemented the amendment in August 2014.”
“Acme did not violate the plans and did not breach its fiduciary duties when it adopted the amendment consistent with the plans’ terms and the law,” Judge Clement wrote. “Dismissal of plaintiffs’ claims against Acme — the declaratory, equitable, and injunctive relief claims, and the breach of fiduciary duty claims — was appropriate.”
The panel said that Acme, as an employer, is not restricted from reducing future pension plan benefit accruals or 401(k) plan employer contributions if Acme acts independently. But, it said, Section 5.7 imposes a limitation on Berkshire that it cannot cause Acme to reduce enumerated benefits. It held that the plaintiffs have pleaded sufficient facts to assert a plausible claim for relief against Berkshire.
“All of the plaintiffs’ claims against Berkshire may proceed, except for its breach-of-contract claim that was not appealed and its participation in Acme’s breach-of-fiduciary-duty claim,” Judge Clement wrote. “Because we found that plaintiffs did not plead sufficient facts to assert a plausible breach-of-fiduciary-duty claim against Acme, we also find that the derivative participation claim fails against Berkshire.”
Remand
The panel remanded the case the case to District Court for further proceedings.
Circuit Judge Priscilla Owen and U.S. Judge Daniel P. Jordan III of the Southern District of Mississippi, sitting by designation, concurred.
The appellants are represented by Gary A. Gotto and Christopher Graver of Keller Rohrback in Phoenix and Thomas David Copley of Keller Rohrback in Seattle.
Berskshire Hathaway and Acme are represented by Anthony F. Shelley of Miller & Chevalier Chartered in Washington, D.C., and Ralph H. Duggins III of Cantey Hanger in Fort Worth, Texas.
(Additional documents available: Appellants brief. Document #54-160810-002B. Appellees brief. Document #54-160810-003B. Appellants reply brief. Document #54-160810-004B.)...