Rehearing and Suggestion for Rehearing En Banc Denied September 20, 1995.
MAGILL, Circuit Judge.
Plaintiffs Gerald G. Roth and Logan M. Ammon appeal from the district court's order granting summary judgment to Charles J. Sawyer and Clifford E. Sawyer, trustees of the Sawyer-Cleator Lumber Company Employee Stock Ownership Plan (the Plan). Roth and Ammon, who were participants in the Plan, claim that the district court erred when it determined that any breach of duty by the trustees resulted in no loss to the Plan. We reverse and remand for further proceedings consistent with this opinion.
Roth and Ammon are former employees of the Sawyer-Cleator Lumber Company (the Company). Before its demise in 1991, the Company was a closely-held corporation engaged in wholesale and retail lumber sales in the Minneapolis-St. Paul area. In 1975, the Company established an employee stock ownership plan (ESOP) to provide retirement benefits to its employees. Under the Plan, each participant had one account consisting of Company stock, and another consisting of other investments. Because the Company was closely-held, one of the methods of distributing Plan benefits to participants was a "put option." Under the put option, the participants could require the Company
Roth and Ammon retired in 1988 and 1989, respectively. At the time of their retirement, Charles J. Sawyer and Clifford E. Sawyer were trustees of the Plan. Roth and Ammon chose to exercise their put options. The stock sale was accomplished by means of a promissory note and stock pledge agreement. The Plan obligated itself to make payments to Roth and Ammon over ten years, and Roth and Ammon retained a security interest in their stock under the stock pledge agreement.
Roth and Ammon filed suit in June 1991, asserting state and federal claims against the Plan and the trustees. The district court dismissed the state law claims and granted summary judgment to the trustees on Roth's and Ammon's ERISA § 409(a)
Summary judgment is appropriate when there is no disputed issue of material fact and the moving party is entitled to judgment as a matter of law. Egan v. Wells Fargo Alarm Servs., 23 F.3d 1444, 1446 (8th Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 319, 130 L.Ed.2d 280 (1994); Fed.R.Civ.P. 56(c). We review a grant of summary judgment de novo, applying the same standard as the district court. Id.
"The primary purpose of [ERISA] is the protection of individual pension rights...." H.R.Rep. No. 533, 93d Cong., 2d Session 1 (1974), reprinted in 1974 U.S.C.C.A.N. 4639, 4639. In order to accomplish this purpose, a breach of fiduciary duty by a trustee
A. Has anyone suffered a loss?
The district court relied upon two rationales to find that Roth and Ammon did not produce a prima facie case of loss to the Plan. First, the district court reasoned that in Roth I, this court noted "that the plaintiffs have never proffered evidence of loss to the plan." 16 F.3d at 920. Although the district court does not specifically label this as the law of the case, it may have treated this statement as law of the case. Second, in evaluating loss, the district court focused upon the assets of the Plan, but viewed the value of these assets in a "snapshot" fashion, and thus viewed it too narrowly.
The district court's first rationale may be quickly disposed of. Law of the case applies only to issues actually decided, either implicitly or explicitly, in the prior stages of a case. Little Earth of the United Tribes, Inc. v. United States Dep't of Hous. & Urban Dev., 807 F.2d 1433, 1438 (8th Cir.1986); 2A Federal Procedure: Lawyers Edition § 3:705 (1994). However, in Roth I, we addressed the trustees' loss argument as follows:
The district court's second line of analysis was to "focus on `a decrease in the value of the Trust estate' to determine whether there has been a loss to the plan." Order at 8 (July 27, 1994). The district court relied upon Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir.1985), and Physicians Health-Choice, Inc. v. Trustees of Automotive Employee Benefit Trust, 784 F.Supp. 1416 (D.Minn.1992), aff'd, 988 F.2d 53 (8th Cir. 1993) (PHC), to support this proposition. We believe that the district court's analysis of Donovan and PHC was incomplete. One cannot determine whether the assets of the ESOP were diminished in the abstract; a comparison must be made between the value of the plan assets before and after the breach. The district court failed to consider the time frame component of the loss calculation, and so doing implicitly focused upon too narrow a time frame. If the Plan's assets are compared immediately before and after the alleged breach (i.e., the decision to secure the notes from the Plan with Company stock), the Plan has suffered no loss. Indeed, the only case in which there could be a loss under this "snapshot" approach would be when the breach consisted of an overpayment by the ESOP. This measure of loss is appropriate in cases where the loss is due to self-dealing or price manipulation. See Donovan, 754 F.2d at 1054-55. However, this case does not involve an overpayment or a breach of trust by self-dealing or price manipulation. In cases such as this, a broader time frame is appropriate. If the assets of the Plan before the alleged breach are compared with the assets of the Plan after the Company has entered bankruptcy,
Physicians HealthChoice, Inc. v. Trustees of Automotive Employee Benefit Trust, 988 F.2d 53 (8th Cir.1993), supports our conclusion. The PHC opinion cited by the district court is the district court opinion in a case that was affirmed with opinion by the Eighth Circuit. An affirmance by this court, even without opinion, is not equivalent to endorsement of the reasoning or language of the district court. 5 Am.Jur.2d Appeal & Error § 934, at 361-62 (1962 & Supp.1994); 5B C.J.S. Appeal & Error § 1857, at 295 (1958). The opinion of this court, which is the applicable precedent, is directly contrary to the district court's position. PHC involved an attempt by PHC, a health care provider, to recover payments from a defunct multi-employer welfare trust. PHC was neither a participant in nor a beneficiary of the trust; it was merely a creditor that had obtained assignments of "all claims, rights or causes of action" against the trust and the trustees from members and beneficiaries of the trust. In affirming the district court's grant of summary judgment against PHC on the basis that PHC had not shown a loss to the plan, Judge Loken wrote:
988 F.2d at 55-56 (emphasis added). Judge Loken's opinion makes clear that the finding of no loss in PHC was based on application of the policy underlying ERISA: ERISA was intended to protect beneficiaries, not creditors. This policy resulted in a denial of § 1109 relief to PHC, a creditor. The same policy counsels in favor of making relief available to beneficiaries such as Roth and Ammon, as Judge Loken specifically noted.
Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir.1985), confirms our analysis. In Donovan, trustees breached a duty of loyalty to the ESOP by making a stock purchase at prevailing prices averaging $38.34 per share when fair market value as determined by an expert was $23 per share. Each share yielded dividends of $2.20 and was later sold for $47.55, resulting in a net profit of $11.41 per share. The Secretary of Labor sought to hold the trustees personally liable under § 409(a) for the amount of overpayment at the time the shares were purchased (i.e., $15.34 per share). The Donovan court rejected this measure of loss and determined loss by comparing the ESOP's actual profit to potential profit that could have been realized in the absence of breach. This measure of loss compared the respective performances over an extended period of time. Id. at 1058. Donovan thus stands squarely for the proposition that loss must be determined by examining the assets of the plan as a whole, not at an instant as was done by the district court, but over a period of time. We have favorably cited Donovan for the measure of loss in a stock manipulation case, and have approved a district court case that relied extensively on Donovan. Martin v. Feilen, 965 F.2d 660, 671 (8th Cir.1992), cert. denied, ___ U.S. ___, 113 S.Ct. 979, 122 L.Ed.2d 133 (1993). We believe that Donovan provides the appropriate analysis of the measure of loss in a case such as this.
Our analysis of loss is supported not only by ERISA cases from this and other circuits, but is reinforced by the analogous trust law which uniformly establishes trustee liability where a breach of fiduciary duty by the trustee results in later losses. The loss requirement of ERISA § 409(a) has been interpreted by looking to "principles developed in the common law of trusts, which in large measure remain applicable under ERISA." Donovan, 754 F.2d at 1055. One treatise summarizes the relevant trust law as broadly defining the types of losses that will result in trustee liability:
3 William F. Fratcher, Scott on Trusts § 205, at 238-39 (4th ed. 1987). The facts of this case present allegations that "in breach of trust [the trustees] invest[ed] trust funds in improper securities that f[e]ll in value." We see no reason why, since such actions cause a loss to a trust estate, similar actions should not be determined to cause a loss to the Plan. Thus, just as a trustee bank was held personally liable for loss to the trust estate where it purchased shares of a "stock or equity" fund in breach and these shares declined in value, Heller v. First Nat'l Bank of Denver, N.A., 657 P.2d 992 (Colo.App.1982), we find a loss to the Plan where the trustees' decisions to
B. Is the entity experiencing the loss the Plan or a participant?
In Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 147, 105 S.Ct. 3085, 3092-93, 87 L.Ed.2d 96 (1985), the Supreme Court distinguished between a loss to a plan itself, for which trustees may be personally liable under § 409(a), and a loss to beneficiaries, for which trustees are not liable. Roth I, 16 F.3d at 919-20. Here, the alleged breach of fiduciary duty consists of (1) using Company stock to secure the promissory notes (2) executed by the Plan. Id. at 917. This breach results in two types of loss: The beneficiaries suffer a loss because their security interest is, due to the trustees' breach of trust, tied to the Company stock which is now worthless. This is a loss to the beneficiaries personally, which is not actionable under Russell. However, the Plan also has an interest in the stock due to the breach. The decision to make the Plan the obligated party on the notes is the direct cause of the Plan's possession of the shares of Company stock that are now worthless. Accordingly, we conclude that the loss is "to the plan" and is therefore actionable under ERISA § 409(a).
C. Were the losses to the Plan caused by the trustees' breach?
The district court also applied a faulty notion of the causality required between the breach and the loss. The district court concluded that "[n]othing in the record suggests that the trustees' decisions to secure the plaintiffs' promissory notes with Company stock and to make the ESOP the obligated party on the plaintiffs' notes had any effect on the value of either the ESOP's assets or the Company stock." Order at 9-10. We reject this conclusion for two reasons. First, this statement is factually inaccurate. The trustees' decisions to secure the plaintiffs' promissory notes with Company stock and to make the ESOP the obligated party on the plaintiffs' notes are the cause-in-fact of the decrease in the ESOP's assets. But for these decisions, the Company, not the ESOP, would have purchased the now worthless shares. Although, absent the trustees' breach, the beneficiaries of the Plan might have had trouble obtaining payment of the notes in full due to the Company's bankruptcy, there would have been no loss to the Plan.
We hold that the decline in value of the Company stock held by the Plan qualifies as a loss to the Plan under ERISA § 409(a). Accordingly, we reverse the district court's grant of summary judgment on this issue. We remand this case for further proceedings consistent with this opinion.
This case is before us for the second time. In our first opinion, Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915 (8th Cir.1994), we reversed the district court's grant of summary judgment and remanded for a reconsideration of certain legal issues. Among the legal issues that we identified for exploration on remand was the question of whether the plaintiffs could demonstrate that the plan had suffered a loss, for if it had not, no action would lie. See 29 U.S.C. § 1109(a). The court rather pointedly noted that "plaintiffs have never proffered evidence of loss to the plan," Roth, 16 F.3d at 920, a statement that the district court quite understandably took to mean that on remand plaintiffs were going to have to adduce some additional evidence or lose.
On remand, plaintiffs did not offer any additional evidence, though they were of course given the opportunity to do so. Instead, they stood on their original motion papers in which they maintained simply that the "trustees' failure to provide adequate security" to support the promissory notes given by the Sawyer-Cleator ESOP to the plaintiffs constitutes a breach of fiduciary duty. This under-collateralization theory was the only one that plaintiffs advanced in their effort to resist summary judgment on remand. As a result, they have forfeited other theories, if any, that they might have had to support their claim that the plan had suffered a loss. See, e.g., Marion County Cooperative Association v. Carnation Co., 214 F.2d 557, 561-62 (8th Cir.1954), and Durasteel Co. v. Great Lakes Steel Corp., 205 F.2d 438, 441 (8th Cir.1953).
Indeed, plaintiffs had years ago already abandoned any other theory of liability for loss to the plan when they responded to defendants' original summary judgment motion. In that response, plaintiffs devoted considerable space to defending their assertion that defendants "failed in their non-delegable duty to provide adequate security to support the terms of payment upon exercise of Plaintiffs' put options." Plaintiffs advanced no other theory in support of their complaint. It is true that in paragraph 45 of their complaint they had said that the trustees committed a breach of fiduciary duty "when they improperly implemented the put options by naming the Plan, rather than the Company, as the obligated party on the Promissory Note under the Ammon Agreement." It is not at all clear what this means: It would seem on its face to mean that there was something fundamentally illegal about
This is the posture in which the case came back to us on appeal. In their brief, appellants repeatedly stated that they were complaining only about improper collateralization of the note. On page 8, for instance, they say that "the wrong complained of by the Plaintiffs is that the individual trustees failed to provide adequate security to support payments from promissory notes given from the plan to the Plaintiffs." On page 10, they repeat that defendants "breached their fiduciary duties to the plan by failing to provide adequate security for the promissory notes given by the plan to the Plaintiffs." On page 13, they reiterate that it is "this failure to provide adequate security, and not failures in administration or investment which leads to the wrong which should be remedied by ERISA" (emphasis supplied). Finally, on page 16, they state that "the breach of fiduciary duty results from the simple failure to provide adequate security for the promissory notes given by the plan to the Plaintiffs in payment for their retirement benefits." All of the citations provided by the plaintiffs in their brief are to statutes and regulations having to do with the duty to provide adequate security. See, e.g., 26 U.S.C. § 409(h)(5)(B) and 29 C.F.R. § 2550.408b-3(l)(4).
Despite all this, the court resuscitates plaintiffs' five-year-old case by recasting their claim as a complaint about purchasing worthless stock. Plaintiffs never complained about that: Their vague asseverations in paragraph 45 of their complaint cannot reasonably be characterized as making such a complaint. Even if they could be so characterized, that claim, as the tedious rehearsal above was aimed at demonstrating, has been forfeited by plaintiffs' arguments in the court below and in this court.
The court reverses this case on grounds that were never addressed to the trial court and never even argued to this court on appeal. Not only did the trial court not have an opportunity to respond to the theory of the case adopted here, see, e.g., Vaughn v. Sexton, 975 F.2d 498, 503 (8th Cir.1992), cert. denied, ___ U.S. ___, 113 S.Ct. 1268, 122 L.Ed.2d 664 (1993), see also 10 C. Wright, A. Miller, and M. Kane, Federal Practice and Procedure: Civil 2d § 2716 at 650-54 (1983), the appellees did not either. As the court quite correctly observes, the fact (if it is one) that there was inadequate security given to the plaintiffs for their notes simply cannot support a claim of loss to the Plan, since the Plan would have suffered the same loss, whatever the security, because of the company's bankruptcy. The inadequacy, if any, of the security simply did not cause a loss to the plan. It merely caused a loss to the plaintiffs, a loss that is not remediable under 29 U.S.C. § 1109(a). That being the case, I would affirm the district court.
I therefore respectfully dissent.
The record indicates that Roth and Ammon have consistently challenged the decision to obligate the Plan on the notes. As the dissent correctly notes, paragraphs 24 and 45 of the amended complaint clearly and specifically advance this theory, alleging that:
J.A. at 6, 8. The defendants were on notice of this theory. The transcript of oral argument submitted by the defendants in support of their motion for summary judgment indicates that Mr. Serdar, the attorney for the plaintiffs, stated that "the issue before th[e district] court [on summary judgment] is centered on the question of whether the plan trustees breached their fiduciary duty in structuring the put transaction as they did." App. at 75. "Structuring the put transaction" involves substantially more than the collateralization decision, and the defendants' familiarity with this description of the issue on summary judgment belies any claim of unfair surprise.
Additionally, in their opposition to the defendants' motion for summary judgment, Roth and Ammon describe their challenge as one that is:
App. at 85. This description of their challenge is a broad one. In the face of such a broad description of the challenge, it simply makes no sense to hold that the plaintiffs have abandoned the theory embodied in paragraphs 24 and 45 of the complaint.
Roth and Ammon's appellate brief also challenges the decision whom to obligate on the notes, arguing that the breach of fiduciary duty is due to the failure adequately to secure notes given from the Plan (rather than the company). Br. at 8, 12, 13, 16. The dissent quotes several of these passages and interprets the language to include only the collateralization decision. However, the dissent does not address the "from the Plan" language found in each of the passages it quotes. This language cannot be ignored, and it is this language that presents the theory of paragraphs 24 and 45.