Mejia et al v. Verizon Management Pension Plan et al

Filing 52

MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 5/2/2012:Mailed notice(wp, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

RAMON MEJIA and MARIO BOERI,
Individually, and on Behalf of
a Class of All Similarly
Situated Persons,
Plaintiffs,
v.
Case No. 11 C 3949
VERIZON MANAGEMENT PENSION
PLAN; VERIZON EXCESS PENSION
PLAN; VERIZON EXECUTIVE LIFE
INSURANCE PLAN; VERIZON INCOME
DEFERRAL PLAN; VERIZON
EMPLOYEE BENEFITS COMMITTEE;
VERIZON COMMUNICATIONS, INC.;
AON CORPORATION; WELLS FARGO &
COMPANY; FMR LLC; MORGAN
STANLEY SMITH BARNEY LLC; and
JOHN DOES 1-25,

Hon. Harry D. Leinenweber

Defendants.

MEMORANDUM OPINION AND ORDER
Before the Court are Defendant Aon Corporation’s (hereinafter,
“Aon”) Motion to Dismiss and a Combined Motion to Dismiss by all
other Defendants.

For the following reason, the Motions are

granted in part and denied in part.
I.

BACKGROUND

As Benjamin Franklin once famously wrote, nothing in this
world can be said to be certain, except death and taxes.
deals

with

the

latter

and

what

recourse

someone

This case

has

when

a

retirement plan gives unto Caesar more than his fair share.

The

answer, unfortunately for Plaintiffs, is precious little.
Plaintiff Ramon Mejia (“Mejia”) is a citizen of Panama who
worked in Latin America for Verizon Communications Inc. (“Verizon”)
for thirty (30) years.

Plaintiff Mario Boeri (“Boeri”) was a

Verizon employee for thirty-six (36) years.
Italy

and

worked

in

the

Dominican

He is a citizen of

Republic.

Except

where

indicated, the following is Plaintiffs’ version of events.
Plaintiff Mejia is a participant in four Verizon-related
plans:
the

the Verizon Management Pension Plan (the “Pension Plan”),

Verizon

Excess

Pension

Plan

(the

“Excess

Pension

Plan,”

Verizon’s GTE Executive Retired Life Insurance Plan (the “Life
Insurance Plan”) and the Verizon Income Deferral Plan (the “Income
Deferral Plan”).

Plaintiff Boeri is a participant in the Pension

Plan and the Excess Pension Plan.
Verizon is the sponsor of all plans, which are governed by the
Employee
§§

Retirement

1001-1461.

Income

Defendant

Security
Verizon

Act

(“ERISA”),

Employee

29

Benefits

U.S.C.

Committee

(“VEBC”) is the plan administrator of the Pension Plan, although
Verizon

has

also

sometimes

administrator by Defendants.

been

referred

to

as

the

plan

Verizon is the plan administrator of

the Life Insurance Plan.
Wells

Fargo

and

Company

(“Wells

Fargo”)

withholding agent for one or more of the plans.

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is

or

was

the

Aon Corporation (“Aon”) in 2010 acquired Hewitt Associates,
Inc. (“Hewitt”), the administrative and record keeping agent for
one or more of the plans.

Hewitt has also sometimes been listed by

Defendants as a plan administrator of one or more of the plans.
FMR LLC (“Fidelity”) is either the plan administrator or
claims administrator with respect to one or more of the plans.
Morgan

Stanley

successor-in-interest

Smith
to

Barney

Solomon

LLC
Smith

(“Morgan
Barney,

Stanley”)
which

was

is
the

administrator of the GTE stock-options program, a predecessor
Verizon-related plan in which Mr. Boeri participated.
John Does 1-25 are unknown plans, fiduciaries of the plans or
service providers to the plans.
Neither Plaintiff ever worked nor resided in the United
States, making their employment income and benefits from their
retirement plans “foreign-source” benefits not subject to U.S.
taxes. Sometimes, foreign-source employees must file a Form W-8BEN
certifying they are not a U.S. Citizen and their income is “not
effectively connected with the conduct of a trade or business in
the

United

States.”

Form

W-8BEN,

Part

IV,

3;

available

at

http://www.irs.gov/pub/irs-pdf/fw8ben.pdf.
Nonetheless, in 1998 and 1999, Morgan Stanley’s predecessor
withheld approximately $94,202 from Boeri when he exercised options
in GTE’s (predecessor to Verizon) stock-option program.

In 2000,

Morgan Stanley’s predecessor sent Boeri an Internal Revenue Service

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(“IRS”) “Notice of Information Discrepancy.”

A few months later,

Verizon sent a follow-up letter, explaining Morgan Stanley had
“incorrectly reported stock-option exercises you have performed to
the U.S. Internal Revenue Service.”

The mistake occurred, Verizon

said, because Morgan Stanley’s computers could not distinguish
between the Verizon Global ID number and a U.S. Social Security
Number.

It promised to assign Boeri and others a new Global ID “to

prevent this from reoccurring.”
But Boeri never received a refund of the $94,202.00.
In 2004, both Plaintiffs retired.

Before Boeri did so, he

inquired about whether any U.S. taxes would be withheld from his
benefits and Verizon “and/or” Aon’s predecessor assured him nothing
would be withheld as long as the proper form was on file before
payment was issued. When Boeri elected his retirement benefits, he
noted

his

foreign-source

status,

included

a

W-8BEN

form

and

informed administrators he was not subject to U.S. taxes.
Nonetheless, Boeri’s Pension Plan took out U.S. taxes, and the
lump-sum

he

received

from

the

Excess

Pension

Plan

amounting to a withholding of more than $50,000.

did

too,

The plans

deducted taxes from Mejia as well.
Mejia attempted to rectify the situation by taking actions
including the following:
C

Writing a letter to Fidelity on February 28, 2008
complaining of “erroneous withholding” and noting
his Form W-8BEN was on file. Fidelity refused to
stop the withholding on the grounds that the U.S.
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does not have a tax treaty with Panama, a
misunderstanding of the tax laws, Plaintiffs say.
C

Providing Fidelity with another Form W-8BEN on
March 25, 2008 and again explaining, in writing,
his tax-exempt status.
Fidelity again cited the
treaty issue and claimed the W-8BEN form was
irrelevant to that issue. Fidelity further said it
was
acting
in
accordance
with
procedures
established by Verizon.

C

Writing to Fidelity again on April 17, 2008,
explaining the error and imploring it to review the
Internal Revenue Service Code and correct the
problem. Fidelity again cited the treaty issue.

C

Writing to Fidelity on May 12, 2008 and this time
enclosing copies of the relevant Internal Revenue
Service (“IRS”) publications.

C

Sending the same materials on May 17, 2008 to the
Wells Fargo predecessor, the withholding agent.
Wells Fargo demurred that it just provided
ministerial services to Verizon and that it took
its marching orders from Fidelity.

Finally, on July 24, 2009, Verizon Manager of Retiree Strategy
& Administration Michael J. Thivierge (“Thivierge”) wrote to Mejia
and apologized for the confusion, explaining that the Verizon
Benefits Center had not had his Form W-8BEN on file and mistakenly
treated the benefits as if they had been earned inside the United
State.

Thivierge explained that Verizon tax attorneys had since

reviewed the matter, ascertained that Verizon had the appropriate
paperwork on file and promised that “Going forward, Mr. Mejia’s
monthly qualified pension and non-qualified deferred compensation
payments will not be taxed.”

Verizon instructed Mejia to apply to

the IRS for a refund for those years where the refund statute of

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limitations had not yet run (there is a three-year limitation) and
agreed to reimburse him for the taxes for which he could no longer
apply for a refund.
Mejia got a partial reimbursement from Verizon for the taxes
withheld in 2005 and applied to the IRS for subsequent years,
receiving partial refunds (the Complaint does not say why he did
not receive a complete refund).
Despite Verizon apparently admitting its mistake, it continued
to withhold taxes from Mejia’s Income Deferral Plan, and continues
to do so.
Apparently concerned for others similarly situated, when Mejia
received the good news, he wrote a letter on August 25, 2009,
thanking Verizon but expressing concern for other Verizon retirees
whose

taxes

were

still

being

withheld.

Verizon’s

Thivierge

responded September 4, 2009, promising it would “be communicating
directly with those impacted retirees.”
Rather than any meaningful communication with those retirees,
the Verizon Benefits Center, managed by Aon “and/or” Verizon sent
a mass mailing on November 20, 2009 informing them that their
Social Security numbers matched those of a deceased individual, and
asked them to sign a notarized affidavit attesting that their
Social Security numbers were, in fact, correct.
Of course, none of the retirees has a Social Security number,
not being United States citizens.

Plaintiffs interpret this mass

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mailing as yet another instance of some of Defendants’ computers
confusing Verizon Global ID numbers with Social Security numbers –
the same problem identified with Mr. Boeri in 2000 that Verizon
promised to fix but apparently never did.

Because the pre-printed

affidavits contained retirees’ Verizon Global ID number and asked
(upon threat of suspension of benefit payments) retirees to swear
it was their Social Security number, Plaintiffs claim this is
evidence of fraud by Defendants.
Boeri faced a Kafkaesque nightmare similar to Mejia’s.

When

he filed an ERISA complaint with the Verizon Claims Review Unit
(the “VCRU”) about the $50,000-plus deducted from his excess income
lump-sum payments in 2004, the VCRU mistakenly told him he was not
eligible for a tax exemption. Boeri believed them, and pursued the
matter no further, until 2009, when he apparently learned of Mr.
Mejia’s limited success.

He complained in writing to Verizon’s

Pension Department on September 16, 2009.

Verizon Corporate

Benefits personnel noted “it appears that his circumstances were
identical to Mr. Mejia’s” and at least 24.12 percent of his
benefits should have been “exempt from U.S. taxes.”
But Verizon was not as generous with Boeri, denying his claim
on April 5, 2010, saying it had previously denied it in 2005 and
would not now treat his renewed efforts as an appeal.
Complaint

does

not

say

if

Verizon

withholding issues.

- 7 -

fixed

Boeri’s

The

improper

Plaintiffs filed this class-action complaint on June 9, 2011
under ERISA.
It alleges aiding and abetting a breach of fiduciary duty
against all Defendants (Count 5) and asks for an injunction against
all Defendants that would prohibit them from future wrongful
withholdings (Count 3).

Count 1 is a claim for benefits against

the four plans, arguing Plaintiffs are due the tax monies that were
improperly withheld.

Count 2 alleges breach of fiduciary duty

against Verizon and the VEBC.

Count 4 charges Verizon and the VEBC

with co-fiduciary liability.

Count 6 claims the VEBC and Verizon

failed to

furnish

ERISA

plan

documents

requested by

Mejia.

Counts 7 and 8 are claims in the alternative, filed in the event
that any claims are construed not to be governed by ERISA.

Count 7

alleges

with

breach

contract.

of

contract

and

tortious

interference

a

Count 8 alleges Breach of common law fiduciary duty and

tortious interference with fiduciary duty.
II.
A.

LEGAL STANDARD
Motion to Dismiss

On a Motion to Dismiss, all of a Plaintiff’s allegations are
treated as true.

FED. R. CIV . P. 12(b)(6); Wigod v. Wells Fargo

Bank, N.A., No. 11-1423, 2012 U.S. App. LEXIS 4714, at *2 (7th Cir.
March 7, 2012).

Complaints will survive a motion to dismiss if

they contain sufficient factual matter to state a claim to relief
that is plausible on its face.

Ashcroft v. Iqbal, 556 U.S. 662,

- 8 -

678 (2009).

However, “threadbare recitals of the elements of a

cause of action, supported by mere conclusory statements, do not
suffice.”

Id. (citing Bell Atlantic Corp. v. Twombly, 550 U.S.

544, 555 (2007).
B.

ERISA and 26 U.S.C. §§ 7421-7422

ERISA allows a beneficiary to institute a civil action to
recover benefits due, to enforce rights under the terms of the plan
and
§

to

clarify

1132(a)(1)(B).

future
The

benefits

under

the

Act

makes

fiduciaries

also

plan.

29
of

U.S.C.
a

plan

“personally liable” for plan losses and subject to equitable or
remedial

relief,

including

removal.

29

U.S.C.

1109(a).

Fiduciaries of a plan may also be held liable for a breach of
fiduciary duty by another fiduciary if he knowingly participated
in, concealed, or allowed the breach by the other fiduciary.
U.S.C. § 1105(a).

29

Plan administrators must supply plan documents

within thirty (30) days upon request or face statutory daily fines,
payable to the requestor.

29 U.S.C. § 1132(c)(1).

However, where an issue has federal tax implications, the tax
code comes

into

play.

Specifically, 26

U.S.C.

§§

7421-7422

provides:
§ 7421. Prohibition of suits to restrain assessment or
collection.
(a) Tax. Except as provided in [selected sections], no
suit for the purpose of restraining the assessment or
collection of any tax shall be maintained in any court by
any person, whether or not such person is the person
against whom such tax was assessed.

- 9 -

(b) Liability of transferee or fiduciary. No suit shall
be maintained in any court for the purpose of restraining
the assessment or collection (pursuant to the provisions
of chapter 71) of —
(1) the amount of the liability, at law or in
equity, of a transferee of property of a
taxpayer in respect of any internal revenue
tax, of
(2) the amount of the liability of a fiduciary
under Section 3713(b) of title 31, United
States Code in respect of any such tax.
§ 7422. Civil actions for refund.
(a) No suit prior to filing claim for refund. No suit or
proceeding shall be maintained in any court for the
recovery of any internal revenue tax alleged to have been
erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority,
or of any sum alleged to have been excessive or in any
manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Secretary, according
to the provisions of law in that regard, and the
regulations of the Secretary established in pursuance
thereof.
These sections have been interpreted to foreclose lawsuits
against private parties who over-collect taxes on behalf of the
federal government.

There is “a practical reason for the courts

not to create such an action:

it would throw a monkey wrench into

machinery designed to confine suits for the refund of federal taxes
to suits in the federal courts against the government in order to
protect its private as well as public agents from being whipsawed,”
explained Judge Richard Posner in Kaucky v. Southwest Airlines Co.,
109 F.3d 349, 353 (7th Cir. 1997).

Instead, the only route to the

improperly withheld money is to file a claim with the government
for refund.

- 10 -

In Kaucky, a passenger sued an airline for collecting an
expired tax on airline tickets, but the district court dismissed
for lack of jurisdiction under § 7422.
spectrum of culpability.

Judge Posner outlined a

At the one end, where § 7422 would

provide no refuge, a “con man” masquerades as a tax collector,
pocketing the swindled funds.

There is no protection because the

private tax collector is not actually an agent of the government.
At the other end is a legitimate tax collector who mistakenly
collects and remits to the IRS a non-existent tax, and § 7422
forecloses suit against them, instead requiring a refund action
against the IRS by the payor of the tax.

Somewhere between, Posner

hypothesized, could be a legitimate tax collector who, knowing the
tax has expired, collects it in bad faith anyway and pockets the
proceeds. For the “bad faith” collector, Judge Posner mused, “[w]e
may assume without having to decide that the intermediate case
should

be

assimilated

to

the

imposter

case

rather

than

the

overpayment case.” Id. (emphasis added).
Later cases threw doubt on whether there was, in fact, such a
route to suit for recovery of funds against a private, bad-faith
defendant.

Quoting § 7422, U.S. Supreme Court Chief Justice John

Roberts noted the expansive nature of the language prohibiting
“any” suit.

“Five ‘any’s’ in one sentence and it begins to seem

Congress meant the statute to have expansive reach.’”

United

States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 7 (2008).
- 11 -

Discussing the unfairness of having to pay a tax later found
unconstitutional, the Court noted “the taxpayer must succumb to an
unconstitutional tax, and seek recourse only after it has been
unlawfully exacted.”

Id. at 10.

The Third Circuit found Clintwood’s emphasis on a lack of
discretion superseded Kaucky.

“Instead of directing courts to

characterize the nature of the tax collector – locating it on a
spectrum from authorized agent acting in good faith, to onceauthorized agent acting bad faith, to ‘con man,’ . . . we think
§ 7422 requires taxpayers to file claims with the IRS for tax
refunds.”

Umland v. Planco Fin. Servs., Inc., 542 F.3d 59, 68

(2008).
There is, however, somewhat more play in § 7421, the AntiInjunction Act.
than § 7421.”

Section “7422 . . . is written much more broadly
Clintwood, 553 U.S. at 13.

Courts may impose an

injunction regarding tax collection practices, but “[o]nly if it is
then apparent that, under the most liberal view of the law and the
facts, the United States cannot establish its claim” to funds. Id.
at 13-14, quoting Enochs v. Williams Packing & Nav. Co., 370
U.S. 1, 7 (1962).

The other requirement of Williams Packing is

that the taxpayer demonstrates that collection would cause him
irreparable harm. S. Carolina v. Regan, 465 U.S. 367, 374 (quoting
Williams Packing, 370 U.S. at 6-7).

- 12 -

The D.C. Circuit interpreted Williams Packing as “recognizing
exception to Tax Anti-Injunction Act . . . where tax collector
lacks ‘good faith’ claim to tax sought to be collected,” Nat. Trust
for Hist. Pres., 995 F.2d 238, 240 (1993)(modified on other grounds
in Nat. Trust for Hist. Pres., 21 F.3d 469 (D.C. Cir. 1994).
Although Plaintiffs claim that the question of how §§ 74217422 relate to ERISA is one of first impression, this is not
entirely accurate.

True, these exact circumstances may not have

arisen before, but the two statutes have previously been analyzed
side by side.
In Pittston Co. v. United States, the Fourth Circuit affirmed
a district court’s decision that “§ 7422 was not preempted by the
Employee Retirement Income Security Act.”
700, 704 (1999).

Pittston, 199 F.3d 694,

That came in the context of an employer seeking

a refund of its premium to a statutorily mandated fund governed by
ERISA. In that case, because the premiums were construed as a tax,
plaintiffs pursued a refund as a tax refund.
In
District

California
Court’s

v.

Regan,

decision

the

finding

Ninth

Circuit

jurisdiction

overturned
in

regards

a
to

California’s attempt, as an employer, to be exempted from ERISA’s
requirement to file with the IRS annual information regarding
employee pension benefit plans.
(1981).

California, 641 F.2d 721, 723

The United States argued such relief was prohibited by a

lack of jurisdiction under § 7421 (the Anti-Injunction Act) and 28
- 13 -

U.S.C. § 2201 (The Declaratory Judgment Act, which allows courts to
issue declaratory judgment “except with respect to Federal taxes.”)
The Ninth Circuit agreed, remanded to the district court with
instructions to dismiss for lack of jurisdiction, noting that the
filing requirement “will have an impact on the assessment of
federal taxes.”

Id.

The court also noted the Supreme Court’s

finding that “[t]he federal tax exception to the Declaratory
Judgment Act is ‘at least as broad as the Anti-Injunction Act.’”
Id. (quoting Bob Jones University v. Simon, 416 U.S. 725, 733 n.7
(1974).
In

McCarthy

v.

Marshall,

an

ERISA

fund

administrator’s

challenge of a Department of Labor regulation was dismissed for
lack of jurisdiction.

Despite ERISA explicitly allowing for such

challenges, the action was dismissed because the challenge carried
substantial tax implications and thus § 7421 controlled. McCarthy,
723 F.2d 1034, 1037, 1038 (1st Cir. 1983).
There are several others, but a very instructive case is the
unpublished Blossom v. Bank of N.H., where plaintiff beneficiary
sued

defendant

bank

under

ERISA,

seeking

assignment of benefits under an ERISA plan.

revocation

of

his

Blossom, No. 02-573-

JD, 2003 U.S. Dist. LEXIS 24182 (D.N.H. Dec. 29, 2003).

The bank

joined the United States as a necessary party, because the IRS had
attached a levy to the plan benefits to satisfy back taxes.
Adjudicating the plaintiff’s claim would mean “the court would
- 14 -

necessarily [have to] consider the tax levy and the assessment of
back taxes against Blossom.

Blossom or the Bank would be entitled

to the payments only to the extent the court determined that the
government was not entitled to a tax levy.

Blossom and the Bank

have not suggested that the government could not prevail on the
merits of the tax issue.”

Id. at *3-4.

was proper for lack of jurisdiction.
III.
A.

For that reason, dismissal
Id.

ANALYSIS

26 U.S.C. § 7422

The Court concludes that all of the monetary damages sought in
this case are actually the Plaintiffs’ attempts to seek a tax
refund from the Defendants.
(Plaintiffs

seek

“ERISA

Literally this may not be true

benefits”

and

damages

for

breach

of

fiduciary and non-fiduciary duties under ERISA and monies expended
pursuing tax refunds), but “we do not think the literal sense is
the right sense.

If it were, then anytime a taxpayer thought he

could prove that his employer had erroneously withheld a portion of
his salary for federal income tax he would have an action in state
court against the employer.”

Kaucky, 109 F.3d at 351.

The situation is slightly different here in the ERISA context,
and Plaintiffs argue that this context and the added “fiduciary
duty”

under

exception.

ERISA

makes

all

the

difference

and

provides

an

Plaintiffs’ authority for that contention are ERISA

statutes and Kaucky.
- 15 -

The Court discounts Plaintiffs’ citation to ERISA law because,
as evidenced by Pittston and the multiple cases cited above,
several different circuits have concluded that 26 U.S.C. § 74217422 is not pre-empted by ERISA.
Plaintiffs also try to hang their hat on an exception they see
in Kaucky, comparing Defendants’ actions with the hypothetical
legitimate

tax

collector

of

Kaucky

who

turns

crooked

and

deliberately pockets a non-existent tax.
There are multiple problems with this comparison, the first
being

that

Plaintiffs

never

alleged

in

their

Defendants pocketed any of the taxes at issue.

Complaint

that

Indeed, they admit

that Mejia was able to recover some of the collected taxes from the
IRS.

The Complaint did not allege that the failure to collect all

the withheld amounts from the IRS was due to Defendants’ wrongfully
pocketing them.

Plaintiffs do adequately charge recklessness,

providing ample allegations that even after Verizon de facto
admitted to Plaintiff Mejia its mistake in regards to all foreignsourced beneficiaries, it continued to wrongfully withhold taxes
from him.

Recklessness is yet another level of culpability, but

was not dealt with in Kaucky.
Even if bad faith or theft had been alleged (and Plaintiff
seems to

argue

that

the

mailing

requesting

the

false

Social

Security affidavit was somehow part of this scheme), the Court does
not read Kaucky as being as definitive as Plaintiffs urge.
- 16 -

Judge

Posner explicitly said that he was “assume[ing] without having to
decide” that such bad faith would evade § 7422's reach.
quoted

portion

alone

indicates

it

was

dicta.

Further,

This
the

hypothetical was posed by Judge Posner for the purpose of showing
that Kaucky, the plaintiff, had not alleged bad faith activity, and
that the only remedy for Kaucky was a claim or suit for a refund
against the government.
The Court is not sure the Social Security affidavit issue
propels this to a bad faith status, but even if it does, the
subsequent Clintwood case casts serious doubt on whether the
Supreme Court shares the view that bad faith can provide a route
around § 7422.
The Court is aware of the perverse implications of this allpowerful statute.

A vengeful employer upset with his employee

might very well withhold 100 percent of the employee’s paycheck as
federal taxes and do so without any financial repercussions for the
employer.

Judge Wald of the D.C. Circuit ruminated that a similar

statute regarding federal receivership might legitimize a similar
parade of horribles, but nonetheless found the “counter-intuitive”
preclusion of suit the correct outcome in light of the plain
meaning of the statute and the absence of any alternative remedy.
Nat. Trust for Hist. Pres. v. FDIC, 21 F.3d at 472.

In short, it

appears that Congress wanted employers (and other tax-collection
agents) to be more afraid of the IRS than lawsuits from employees,

- 17 -

and it gave them broad protection in the form of § 7422 to effect
seamless tax collection.

“Congress, of course, can change this

state of affairs should it so choose.”

Id.

The Court finds that all of Plaintiffs’ damages, missed
benefits, expenses and requested surcharges are tax refunds in
disguise, because they are all premised on Defendants improperly
withholding taxes.

However, one particular argument deserves some

elaboration.
Plaintiffs alleged in their Complaint that Verizon became
aware of its improper withholding, admitted this to Mejia and
promised to address it with other beneficiaries but then did not.
They contend once Verizon admitted in writing to Plaintiffs
that it believed it had been wrong to withhold taxes, it was bound
by fiduciary duty to inform similar plan participants they might be
due a refund from the government. Plaintiffs argue there is a duty
“to deal fairly and honestly with beneficiaries.”
Howe, 516 U.S. 489 (1996).

Varity Corp. v.

They contend silence alone can be

misleading and breach a fiduciary duty.

Adamczyk v. Lever Bros.

Co., 991 F.Supp. 931, 939 (N.D. Ill. 1997).
There is ground for this in the Seventh Circuit. “Fiduciaries
must . . . communicate material facts affecting the interests of
beneficiaries.”

Anweiler v. American Elec. Power Serv. Corp.,

3 F.3d 986, 991 (7th Cir. 1993).

The Court finds this is a solid

argument for fiduciary breach, but as far as damages are concerned,
- 18 -

is foreclosed by the tax code.

However, some injunctive relief in

this area may not run afoul of the tax code, as will be addressed
in the next section.
Because the Court believes that § 7422 is rather absolute in
its prohibition on seeking tax refunds from private tax collectors,
and there is no form of repleading that could evade § 7422, to the
extent Plaintiffs seek any monetary damages stemming from the
proper or improper withholding of taxes, the Complaint is dismissed
with prejudice.
B.

26 U.S.C. § 7421

As previously noted, there is more wiggle room with § 7421,
the Anti-Injunctin Act.

Before addressing that statute, however,

the Court notes that Plaintiffs contend the requested relief they
seek “clarifying” the ERISA duties of the Defendants would not run
afoul of § 7421 because it would not constitute an injunction.

The

Court doubts that, but need not reach the question, because such a
“clarification” by the court would unquestionably be a declaratory
judgment regarding what taxes are and are not legally capable of
being withheld, and the federal tax exemption to the Declaratory
Judgment Act, 28 U.S.C. § 2201, forecloses this relief unless a
narrow exception is met.
This exception to § 7421, and 28 U.S.C. § 2201, is very
specific. Plaintiff’s Complaint, taken in the light most favorable
to it, adequately alleges the first necessary component of this

- 19 -

exception:

that the federal government could not conceivably

prevail in a refund action on the taxes that have been or are being
withheld from Plaintiffs.

Plaintiffs do not explicitly allege

this, but it is a reasonable implication, given that they have pled
that Verizon essentially admitted in writing the withholdings were
incorrect and then blithely continued them in regards to Plaintiff
Mejia and failed to inform other similar-situated beneficiaries of
its error or how such beneficiaries could go about recovering their
money from the government.
This begs the question of whether Verizon’s alleged admission
of wrongful tax collection constitutes an admission by the other
defendants, or whether it can also be considered the government’s
position.

It also begs the question of whether the United States

is a necessary party in this matter to answer such a question.

The

Court doubts the United States would agree that a private tax
collector’s interpretation of the tax law binds it in any way. But
again, we need not determine these issues now because Plaintiffs
have failed to allege another needed component to the § 7421
exception, irreparable harm.

S. Carolina v. Regan, 465 U.S. 367,

374 (quoting Williams Packing, 370 U.S. at 6-7).
Because Plaintiffs have not alleged irreparable harm, to the
extent their Complaint seeks declaratory judgment or injunctive
relief that could affect the collection of taxes, the Complaint is
dismissed without prejudice.

As noted above, the Court has not

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addressed whether the U.S. Government would be a necessary party to
any such action.

However, if Plaintiffs refile such allegations,

they are instructed to serve a copy on the U.S. Attorney’s Office
for the Northern District of Illinois and notify it that this Court
seeks its input on the issue of whether it is a necessary party to
this action under Federal Rule of Civil Procedure 19.
The Court finds that almost all of Plaintiff’s requested
relief would be declaratory judgments or injunctions affecting the
collection of taxes. For example, removal of the fiduciaries would
implicitly serve as an admonition to the replacement fiduciaries
that the former regime had incorrectly collected taxes and that
they should not repeat the same mistake.
Other forms of relief would either similarly direct new tax
collection practices or run afoul of the standing requirement that
an injury must be capable of redress by a favorable court ruling.
Bond v. Utreras, 585 F.3d 1061, 1072-1073 (7th Cir. 2009).

An

audit, for instance, must necessarily either direct future tax
withholding practices or be purely advisory, which would not
redress the alleged injury.
Because it may be possible for Plaintiffs to replead in a
manner that meets the narrow injunction exception, the portion of
the Complaint seeking injunctive or declaratory relief that would
affect tax collection is dismissed without prejudice.

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C. Allegations Not Seeking a Tax Refund or a
Declaratory Order/Injunction Affecting Tax Collection
There are two narrow fact scenarios alleged by Plaintiffs that
do not seek the de facto return of paid taxes or an injunction or
declaratory judgment affecting tax collection.
The first is Plaintiff’s Count 6, alleging Defendants VEBC and
Verizon failed to supply requested plan documents to Mejia as
required under ERISA.

Supplying these documents would neither

constitute a tax refund, nor would inhibit tax collection, so
§§ 7421-7422 do not apply.

However, Defendants quibble that

Plaintiffs cited the wrong section of the statute.

Plaintiffs did

not respond to this argument, so it is conceded.

Bonte v. U.S.

Bank, N.A., 624 F.3d 461, 466 (7th Cir. 2010).

However, this is a

very correctable oversight, and therefore the Count is dismissed
without prejudice.
Second is the aforementioned injunctive relief in regards to
notification of plan participants that Verizon itself believes they
may be due a tax refund and informing them how to go about seeking
one.

Such injunctive relief would in no way impede the collection

of taxes by the federal government. It merely would serve to bring
similarly situated plan participants out of the dark on what,
allegedly, is a mistake that Verizon itself believes it has made.
Beneficiaries would then be free to pursue or not pursue a refund
action directly with the government.

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However, in regards to this notification issue, the Complaint
never says how or if Plaintiffs were damaged by this.

There is,

admittedly, a hint at it when Plaintiffs seek “an order requiring
Defendants to notify the class members of the procedures by which
they might be able to obtain redress, including but not limited to
the IRS refund procedures.”

Pl.’s Compl. 25.

But this only hints

at the money withheld, which presumably resulted from the wrongful
withholding, not the failure to notify.

Plaintiffs do not, for

example, allege that the failure to notify prevented Plaintiffs
from recovering their wrongfully withheld taxes due to statute of
limitations issues.
response.

That allegation only comes in Plaintiff’s

Pl.’s Resp. 14.

Where no damages are alleged, a cause of action must be
dismissed.

Bd. of Trs. of the N.J. Carpenters Annuity and Pension

Funds v. Bank of New York Mellon, et al., No. 11-Civ.-1555, 2011
U.S. Dist LEXIS 120190, at *15 (dismissing plaintiffs ERISA claims
and state fiduciary duty claims for failing to sufficiently allege
damages beyond conclusory terms). Therefore, to the extent Count 3
is based on the notification breach of fiduciary duty, it is
dismissed without prejudice.
Similarly, if Plaintiffs replead, they would do well to
explain what damages were caused by the November 20, 2009 letter
asking beneficiaries to attest a company ID number was their Social

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Security number.

It seems to be a centerpiece of the Complaint,

but the Court is at a loss as to its significance.
D.

Counts 7 & 8

Plaintiffs filed Counts 7 and 8 as counts-in-the-alternative
in the event that their Complaint was construed as dealing with
non-ERISA matters. Both sides agree ERISA governs, so these Counts
are dismissed with prejudice.
E.

Counts Against Aon/Hewitt

As a preliminary matter, Defendant Aon seeks dismissal of
Counts 2 and 4 against it, but Plaintiff’s Complaint makes clear
that these counts are only “Against the VEBC and Verizon,” and so
the Court does not consider Plaintiffs to have alleged Counts 2 and
4 against Aon.

Therefore, with respect to Counts 2 and 4, Aon’s

Motion is denied as moot because these allegations are not pending
against Aon.
To

clear

up

another

preliminary

matter,

Plaintiffs

have

clarified they do not allege Aon is a fiduciary, so to the extent
Counts 3 and 5 allege any fiduciary breach by Aon, the Motion to
Dismiss is granted as to Aon.
What remains, then, is Count 3 seeking equitable relief
against Aon and Count 5 alleging aiding and abetting breach of
fiduciary duty.
First, Aon contends that the equitable relief sought in
Count 3 (under ERISA § 502(a)(3); 29 U.S.C. § 1132(a)(3) – the

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“catch all” relief subsection) is not available because it is
redundant of relief requested under ERISA § 502(a)(1)(B) (29 U.S.C.
§ 1132(a)(1)(B)).

Aon cites Mondry v. Am. Family Ins. Co., 557

F.3d 781, 805 (7th Cir. 2009).
argument.

Aon’s own case defeats its

In that case, the court granted monetary relief under

§ 1132(a)(3) because it was extra-contractual damages not provided
for under § 1132(a)(1)(B).

Likewise, here, Plaintiffs request

equitable relief such as an order directing those involved with the
plans to notify participants of an erroneous withholding and
supplying directions on how to pursue recovery of those funds.
That relief is outside the scope of § 1132(a)(1)(B). Additionally,
the

breach

upon

which

it

is

premised

(failure

to

notify

participants of an erroneous withholding) is different than the
circumstances under which Plaintiffs seek § 1132(a)(1)(B) relief
(improper withholding).
Next, Aon contends the Count 5 allegations in the Complaint,
at least with respect to Aon, are too skeletal to survive a Motion
to Dismiss.
Liability of a non-fiduciary for aiding a fiduciary breach
“require[s] more than innocent but careless errors on the part of
the non-fiduciary defendant.”

Pappas v. Buck Consultants, Inc.,

923 F.2d 531, 542 (7th Cir. 1991).

Alleging such liability also

requires (1) alleging a fiduciary breach in the first instance and
(2) alleging that the non-fiduciary knowingly participated in that

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prohibited conduct.

Daniels v. Bursey, 313 F.Supp.2d 790, 808

(N.D. Ill. 2004).
The Court confesses that, like Defendants, it had a hard time
sussing out which acts in the Complaint Plaintiffs believe are
breaches of fiduciary duty and which are not.

It gleaned that the

improper withholding was one and the failure to notify of the
improper withholding was another, and evaluates Aon’s liability
with respect to those two acts.

If Plaintiffs meant to allege

other acts constituted fiduciary breaches (as they do in their
response) they would do well, if they replead, to make that clear
in their Complaint.
Plaintiffs maintain the law of this District instructs that
non-fiduciaries need not know that certain conduct violates a
fiduciary duty, only that they know of it or facilitate it.
contends even

if

this is

the

case, Plaintiffs

Aon

didn’t allege

Aon/Hewitt knew of these acts.
Again, more clarity in the Complaint would be desirable, but
the Court does not rule on whether such pleading was sufficient
because it disagrees with Plaintiffs’ legal conclusion that the
non-fiduciary need not know the conduct violates a fiduciary duty.
Plaintiffs cite two cases for this proposition.

Daniels v.

Bursey, 313 F.Supp.2d 790, 809 (N.D. Ill. 2004) and Neil v. Zell,
753 F.Supp.2d 724, 731 (N.D. Ill. November 9, 2010).

The Court

agrees that the latter is inapposite because it was actually

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evaluating a fiduciary’s culpability.

It further agrees with

Defendants that the former decision came before Iqbal, and the
conclusory language that sufficed then (that the non-fiduciary
mismanaged the plan) would not suffice now.
More persuasive to the Court are Aon’s cited cases for the
proposition that distinct knowledge of a breach is required.

See,

e.g., In re Bausch & Lomb, Inc. ERISA Litig., No. 06-CV-6297, 2008
WL 5234281, at *12 (W.D.N.Y. Dec. 12, 2008).

This is buttressed by

the fact that, where co-fiduciaries are concerned, “liability for
failure to take reasonable steps to remedy a breach requires more
than mere knowledge of a cofiduciary’s act or omission; it requires
actual knowledge that it is a breach.”
PRINCIPLES
2010).

OF

PETER J. WIEDENBECK , ERISA:

EMPLOYEE BENEFIT LAW , 118 n.40 (Oxford University Press

It is inconceivable that a non-fiduciary would be held to

a higher standard than a fiduciary.
Defendant Aon advanced this argument, but it applies to the
other non-fiduciary Defendants as well.

Therefore, Count 5 is

dismissed without prejudice as to all defendants on these grounds
as well.
IV.

CONCLUSION

For the reasons stated herein, the Motions to Dismiss are
granted in part and denied in part as follows:
1.

Counts 1-5:

To the extent the counts seek to recoup

benefits from the plans, they are dismissed with prejudice. To the

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extent they seek injunctive relief or declaratory judgment, they
are dismissed without prejudice.
2.

Count

6

(against

VEBC

and

Verizon):

The

Count is

dismissed without prejudice.
3.

Counts 7 & 8 (against all Defendants):

The Motions to

Dismiss with prejudice are granted.
IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
DATE: 5/2/2012

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