McZeal v. Southern Consumers Coop Inc et al

Filing 103

REPORT AND RECOMMENDATIONS re 74 MOTION for Partial Summary Judgment filed by Alfred McZeal, Sr, 84 MOTION for Judgment on the Pleadings MOTION for Partial Summary Judgment filed by Alfred McZeal, Sr Objections to R&R due by 4/6/2009. Signed by Magistrate Judge C Michael Hill on 3/20/09. (crt,Roaix, G)

UNITED STATES DISTRICT COURT W E S T E R N DISTRICT OF LOUISIANA A L F R E D MCZEAL, SR. V S. SOUTHERN CONSUMERS C O O P , INC., ET AL. C I V I L ACTION NO. 05-1080 J U D G E DOHERTY M A G I S T R A T E JUDGE HILL

R E P O R T AND RECOMMENDATION Pending before the court are two Motions for Partial Summary Judgment filed by p r o se plaintiff, Alfred McZeal, Sr. ("McZeal"). [rec. docs. 74 1 and 84 2 ]. By the latter M o tio n , McZeal seeks summary judgment on his claims under ERISA for breach of f id u c ia ry duties, and negligence asserted under Louisiana state law, denominated as c la im s one through five in plaintiff's Complaint. By the former Motion, McZeal seeks im p o sitio n of a constructive trust and equitable lien under ERISA on assets he asserts b e lo n g to his ERISA plan which have allegedly been unlawfully transferred as a result of f id u c ia ry breaches. Defendants, Southern Consumer Cooperative, Inc. (SCC), the P eo p le's Enterprises, Inc. (People's), Southern Development Foundation, Inc. (SDF),

Disposition of the Motion was delayed pending resolution of any issue preclusion or collateral estoppel i s s u e s which may have arisen as a result of the Louisiana state court's June 18, 2008 entry of judgment on McZeal's s ta te court breach of contract action. [rec. docs. 77 and 83]. Before that analysis could be completed, McZeal a p p e a le d the undersigned's Order to District Judge Doherty. [rec. doc. 78]. Judge Doherty has now resolved p la in tiff's appeal. [rec. doc. 101]. Moreover, the undersigned has determined that, with respect to plaintiff's ERISA c l a i m s , the state court judgment has no preclusive effect under either the principle of res judicata (claim preclusion) o r under the principle of issue preclusion (collateral estoppel). Accordingly, the instant Motion is ripe for resolution.

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The Motion is styled as a Motion for Judgment on the Pleadings and alternatively for Partial Summary J u d g e m e n t . However, because the Motion is supported by documents which are not part of the pleadings in this c a s e , the Motion is construed as a Motion for Partial Summary Judgment.

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J o h n Freeman (Freeman), Albert J. McKnight (McKnight), Howard McZeal, John Bess (B e ss ), and Bipin Pandya (Pandya), have filed opposition [rec. doc. 94]. The Motions h a v e been referred to the undersigned for report and recommendation. F o r the following reasons, it is recommended that the plaintiff's Motions for P a rtia l Summary Judgment [rec. docs. 74 and 84] be DENIED. Furthermore, the u n d e rs ig n e d has, sua sponte, analyzed the claims brought by McZeal under ERISA. After a thorough review, the undersigned concludes that McZeal has failed to state a claim for w h ic h relief can be granted, and it is further recommended that all of plaintiff's claims u n d e r ERISA for breach of fiduciary duties, his request for declaratory judgment and e q u ita b le relief under ERISA, as well as plaintiff's negligence and all other claims a ss e rte d under Louisiana state law be DISMISSED WITH PREJUDICE.3 A L L E G A T IO N S OF COMPLAINT In his Complaint, McZeal sets forth federal causes of action under ERISA and R IC O and claims for negligence under Louisiana state law. [rec. doc. 1]. With respect to his ERISA claims, plaintiff names SCC as the plan sponsor, a d m in is tra to r, investment fiduciary and "named fiduciary." [rec. doc. 1, ¶ 12]. Plaintiff a ls o names Peoples and SDF as a plan co-sponsors, co-administrators, co-investment f id u c ia rie s and "named" fiduciaries. [Id. at ¶ 13 and 14].

Since plaintiff was not notified of this pending analysis, the plaintiff is directed to address all argument on t h e s e issues to the District Judge in his objections to this Report and Recommendation.

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F re e m a n (the alleged president, chief executive officer and director of SCC, P e o p le s and/or SDF) is named as a "fiduciary of the plan." [Id. at ¶ 15]. McKnight (the a lle g e d CEO of SDF and past CEO of SCC), Howard McZeal (the alleged chief financial o f f ic e r of SCC and Peoples), Bess (alleged SCC and Peoples board member and/or past b o a rd member of SCC) and Pandya (alleged investor, "debenture holder" and "quasib o a rd member" of SCC and Peoples and/or past board member of SCC) are named as " a g e n t[ s ]" for the other defendants. [Id. at ¶ 16 and 17, 18 and 19]. Freeman, McKnight, Bess, Pandya and Howard McZeal are also referred to in the c o m p la in t collectively as the "officer defendants" and "director defendants." [Id. at ¶ 30]. Contrary to his allegations regarding SCC set forth above, plaintiff alleges that because S C C did not appoint individuals to carry out the duties of plan administrator or in v e stm e n t fiduciary, these duties "fell upon both SCC and its officers including the o f f ice r defendants" and further, that "SCC's directors, including the director defendants o w ed a fiduciary duty to monitor the performance by the plan fiduciaries of their fiduciary d u tie s." [Id. at ¶ 38]. Alternatively, plaintiff alleges that if SCC did appoint individuals to carry out the d u ties of the plan administrator or investment fiduciary, "SCC's officers and SCC's d irec tors, including the officer defendants and the director defendants, had a fiduciary d u ty with respect to the selection of such individuals and the monitoring of the p e rf o rm a n c e by such individuals of their duties . . ." [Id. at 39]. Plaintiff further alleges th a t SCC and the officer defendants "were plan fiduciaries, responsible for the investment 3

o f plan assets . . . ." [Id. at ¶ 48]. With respect to each individual defendant, plaintiff alleges causes of action against F r e e m a n including claims for "breach of fiduciary duty, ERISA negligence" and " n e g lig e n c e." [Id. at ¶ 83]. With respect to McKnight, Howard McZeal, Bess, and Panya p la in tif f alleges causes of action including claims for "ERISA negligence" and " n e g lig e n c e." [Id. at ¶ 85, 87, 89, 91]. In his First claim for relief, McZeal sues under § 1132(a)(2) and (3), alleging that th e "fiduciary defendants" breached their fiduciary duty set forth in § 1104(a)(1) to use c a re , skill, prudence and diligence by failing to prudently invest the plan's assets, and m o re specifically, by investing in People's allegedly fraudulent stock, causing the plan to su f f e r a loss. As a result of their alleged breach, McZeal claims that these defendants w e re unjustly enriched and, accordingly, under § 1109, are "personally liable to make g o o d to the plan any losses to the plan . . . and to restore to the plan any profits the f id u c ia ry made through use of the plan's assets", that they are "liable to disgorge such p r o f its " made by them and that the plan is further entitled to a constructive trust on these a m o u n ts . [Id. at ¶ 93-99]. In his Second claim for relief, citing § 1104(a)(1) and § 1109, McZeal sues under § 1132(a)(2) and (3), alleging that the officer and director defendants breached their f id u c ia ry duty to monitor the plan to ensure that each plan investment was "suitable", and m o re specifically, to monitor the plan's investment in People's stock, causing the loss of

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" m illio n s of dollars". McZeal further alleges that each fiduciary defendant, who k n o w in g ly concealed the breach of another fiduciary and failed to make reasonable e f f o rts to remedy the breach, is liable as a co-fiduciary under § 1105. [Id. at ¶ 100-108]. In his Third claim for relief, again citing § 1104(a)(1) and § 1109, McZeal sues u n d e r § 1132(a)(2) and (3), alleging that SCC and the officer defendants breached their f id u c ia ry duty to plan participants by making "material misrepresentations" and by failing to provide complete and accurate information regarding the "soundness" of SCC stock, th e "prudence" of investing in WorldCom stock, and causing participants to "maintain s u b s ta n tia l investments of their plan account" in People's stock, which resulted in a re d u c tio n in the value of the plan. McZeal further alleges that each fiduciary defendant w h o knowingly concealed the breach of another fiduciary and failed to make reasonable e f f o rts to remedy the breach, is liable as a co-fiduciary under § 1105. As a result of their a lle g e d breach, McZeal claims that these defendants were unjustly enriched and, a c c o r d i n g ly, the plan is entitled equitable restitution and a constructive trust on these a m o u n ts . [Id. at ¶ 108-115]. In his Fourth claim for relief, citing § 1104(a)(1) and § 1109, McZeal sues under § 1132(a)(2) and (3), alleging that the officer and director defendants breached their duty o f loyalty to the to plan participants by failing to avoid conflicts of interest, and, more s p e c if ic a lly, "by continuing to allow company stock as a plan investment . . . by c o n tin u in g to participate in various company scandals and programs that created a

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s u b s ta n tia l personal interest in certain defendants to maintain a high public price for P e o p le 's . . . stock" by "failing to engage independent fiduciaries and/or advisors who c o u ld make independent judgments concerning the plans investments", causing the loss of " m illio n s of dollars." McZeal further alleges that each fiduciary defendant, who k n o w in g ly concealed the breach of another fiduciary and failed to make reasonable e f f o rts to remedy the breach, is liable as a co-fiduciary under § 1105. As a result of their a lle g e d breach, McZeal claims that these defendants were unjustly enriched at the e x p e n se of the plan and, accordingly, that the plan is entitled to equitable restitution and a c o n s tru c tiv e trust on these amounts. [Id. at ¶ 116-118]. In light of the above, although unclear in the pleadings and in the instant Motion, th e undersigned assumes, for purposes of the instant Motion, that the alleged ERISA " f id u c ia ry defendants" against whom summary judgment is sought are SCC, SDF, P e o p le s , Freeman, McKnight, Howard McZeal, Bess, and Panya. In his Fifth claim for relief, McZeal asserts a negligence claim under Louisiana s ta te law against SCC and presumably SDF in their alleged role as "auditor" for the plan, f o r failing to exercise the degree of skill normally exercised by accountants performing a u d itin g services for the plan. [Id. at ¶ 119-122]. M c Z e a l alleges that "the relief requested in this action is for the benefit of the p la n ." [Id. at ¶ 31]. Consistent with this allegation, in his prayer, McZeal prays for v a rio u s forms of relief including an order compelling the fiduciary defendants to make

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g o o d to the plan all losses resulting from their alleged breaches and requiring them to re sto re to the plan all profits they made through use of the plan's assets, the imposition of a constructive trust on any amounts by which any defendant was unjustly enriched as a re su lt of the breach of a fiduciary duty, an order requiring equitable restitution to the plan a n d "other appropriate equitable monetary relief", other equitable relief including the re m o v a l of the defendants from positions of trust and appointment of independent f id u c ia rie s to administer the plan, and an award of damages against SCC and the other n a m e d defendants for negligence. [Id. at ¶ 135(C), (D), (E), (F), and (G)].4 L A W AND ANALYSIS Summary Judgment Standard Summary judgment is proper when "the pleadings, the discovery and disclosure m a te ria ls on file, and any affidavits show that there is no genuine issue as to any material f a c t and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "[I]f the moving party fails to establish by its summary judgment evidence that it is e n title d to judgment as a matter of law, summary judgment must be denied ­ even if the n o n -m o v a n t has not responded to the motion." McDaniel v. Southwestern Bell

Because McZeal's complaint is an enforcement action brought solely under § 1132(a)(2) and (3), and not a s an action under § 1132(a)(1)(B) to recover benefits owed under the terms of his plan or for clarification of his r ig h ts to future benefits, the undersigned need not address jurisprudence holding that actions under subsection (a)(3) a r e barred when simultaneously brought with actions under subsection (a)(1)(B). See Musmeci v. Schwegmann Giant S u p e r Markets, Inc., 332 F.3d 339, 349 n. 5 (5th Cir.2003); Estate of Bratton v. National Union Fire Ins. Co. of P i t ts b u r g h , PA, 215 F.3d 516, 526 (5th Cir.2000); Rhorer v. Raytheon Engineers and Constructors, Inc., 181 F.3d 6 3 4 , 639 (5th Cir.1999); Tolson v. Avondale Indus., Inc., 141 F.3d 604, 610 (5th Cir.1998). Furthermore, this c o n s tr u c tio n is reasonable, given that McZeal has obtained a Louisiana state court judgment for breach of contract a g a i n s t SCC awarding him all past due and future benefits due him under the plan.

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T e le p h o n e , 979 F.2d 1534 (5 th Cir. 1992) citing John v. Louisiana (Bd. of Trustees), 757 F .2 d 698, 708 (5th Cir. 1985) (noting that "[t]he moving party still has the initial burden, u n d e r Rule 56(c), of showing the absence of a genuine issue concerning any material fact, a n d of showing that judgment is warranted as a matter of law.") (emphasis added); United S ta te s Steel Corp. v. Darby, 516 F.2d 961, 963 (5 th Cir. 1975) ("The moving party bears th e burden of showing both the absence of a genuine issue as to any material fact and that jud g m en t is warranted as a matter of law.") (emphasis added). In this case, the undersigned concludes that McZeal did not discharge his initial b u rd e n of showing that he is entitled to judgment as a matter of law. Accordingly, the in s ta n t Motions should be denied. L A W AND ANALYSIS T h e undersigned previously determined that the benefit arrangement set out in the c o n tra c t (with attachments) between McZeal and SCC is a "plan" covered by ERISA, a n d , accordingly, that this court had jurisdiction to consider McZeal's ERISA claims. [ re c . doc. 41]. Although the undersigned determined that the arrangement constituted a " p e n sio n benefit" or "pension plan" as those terms are defined under ERISA, the u n d e rs ig n e d was not required to consider if the arrangement constituted any particular typ e of pension benefit plan. The instant Motion requires the undersigned to make that d e te rm in a tio n .

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C la im s one through four of McZeal's Complaint allege that the defendants violated 2 9 U.S.C. §§ 1104 5 and 1109.6
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Both of these sections fall under ERISA's fiduciary

re sp o n s ib ility provisions. In order to determine whether these claims are viable, and th e re f o re properly capable of determination on motion for summary judgment, the u n d e rsig n e d must determine whether the plan covering McZeal qualifies as a "top-hat" p la n . This determination is crucial because top-hat plans are exempt from ERISA's

29 U.S.C. § 1104 provides that an ERISA fiduciary must perform his duties with respect to a plan "solely in the interest of the participants and beneficiaries . . ." in accordance with a "prudent man standard of care." 29 U .S . C . § 1104(a)(1).
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2 9 U.S.C. § 1109 provides in relevant part: ( a ) Any person who is a fiduciary with respect to a plan who breaches any of the r e s p o n s i b i l it i e s , obligations, or duties imposed upon fiduciaries by this s u b c h a p te r shall be personally liable to make good to such plan any losses to the p la n resulting from each such breach, and to restore to such plan any profits of s u c h fiduciary which have been made through use of assets of the plan by the fid u c i a r y, and shall be subject to such other equitable or remedial relief as the c o u r t may deem appropriate, including removal of such fiduciary.

E R I S A allows suits by plan beneficiaries against plan fiduciaries and co-fiduciaries for breaches of fid u c i a r y duty. 29 U.S.C. § 1109; 29 U.S.C. § 1105(a); 29 U.S.C. § 1132(a)(2). See also Tolson v. Avondale Indus., I n c . , 141 F.3d 604, 610 (5th Cir.1998) ("Section 1132(a)(2) allows a beneficiary to bring a standard breach of f i d u c i a r y duty suit for the benefit of the subject plan."); Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 1 3 6 , 140, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985). If a fiduciary fails to meet the "prudent man" standard, he may be h e l d personally liable for any losses to the plan that result from his breach of duty. 29 U.S.C. § 1109. In M a s s a c h u s e t t s Mut. Life Ins. Co. v. Russell, the Supreme Court held that recovery under 29 U.S.C. § 1109(a) and 29 U . S . C . § 1132(a)(2) is limited solely to the benefit of the plan, not an individual beneficiary. Cunningham v. Dun & B r a d s tr e e t, Inc., 105 F.3d 655, 1996 W L 762915, *1 (5 th Cir. 1996) citing Russell, 473 U.S. at 140; McDonald, 60 F .3 d at 237 citing Russell, 473 U.S. at 140. Thus, extracontractual compensatory or punitive damages are not r e c o v e r a b l e . Russell, 473 U.S. at 138. ERISA also provides a cause of action for individualized equitable relief for individual participants who a l le g e a breach of fiduciary obligations. Radford v. General Dynamics Corp., 151 F.3d 396, 398 399 (5 th Cir. 1998) c itin g Varity Corp. v. Howe, 516 U.S. 489, 116 S.Ct. 1065 (1996); 29 U.S.C. § 1132(a)(3); Cunningham, 105 F.3d 6 5 5 citing Varity. Section 1132(a)(3)'s authorization to a plan participant to bring a civil action for "appropriate e q u i t a b l e relief" extends to a suit against a non-fiduciary "party in interest" to a prohibited transaction barred by § 1106. See Harris Trust and Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 120 S.Ct. 2180 (2000). McZeal has not sued for any alleged breach under § 1106, nor has he named any defendant in other than a fiduciary c a p a c i t y . However, to the extent that McZeal asserts such a claim, top-hat plans are exempt from operation of this p r o v i s io n as it, like §§ 1104 and 1109, falls within ERISA's fiduciary responsibility provisions.

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f id u c ia ry responsibility provisions, including 29 U.S.C. §§ 1104 and 1109.8 See 29 U.S.C. § 1101(a)(1) (excluding top-hat plans from ERISA's fiduciary responsibility provisions c o d if ied at 29 U.S.C. §§ 1101-1114); Reliable Home Health Care, Inc. v. Union Central In s u r a n c e Co., 295 F.3d 505, 512 (5 th Cir. 2002); Holloman v. Mail-Well Corp., 443 F.3d 8 3 2 , 842 (11 th Cir. 2006); Goldstein v. Johnson & Johnson, 251 F.3d 433, 443 (3 r d C ir.2 0 0 1 ). See also Bakri v. Venture Mfg. Co., 473 F.3d 677, 678 (6 th Cir.2007) citing G a llio n e v. Flaherty, 70 F.3d 724, 727 (2 nd Cir.1995). A c c o rd in g ly, with respect to top-hat plans, the Fifth Circuit and other Circuit c o u rts are in agreement that there is no cause of action for breach of fiduciary duty under E R IS A . Reliable, 295 F.3d at 514 and 516-517; Goldstein, 251 F.3d at 443; Holloman, 4 4 3 F.3d at 842; Demery v. Extebank Comp. Plan, 216 F.3d 283, 290 (2 n d Cir. 2000) (a f f irm in g the lower court's dismissal of plaintiff's breach of fiduciary duty claims to the ex tent that they were based on ERISA because the plan qualified as a top-hat plan); D u g g a n v. Hobbs, 99 F.3d 307, 313 (9 th Cir. 1996) (same); Garratt v. Knowles, 245 F.3d 9 4 1 , 949 (7 th Cir. 2001) ("Garratt had suggested that despite preemption of his state law c la im s , ERISA would permit his suit against the defendants for breach of fiduciary duty. H o w e v e r, since a top hat plan is exempt from ERISA's fiduciary rules, Garratt would h av e no basis to bring such a claim."); Paneccasio v. Unisource Worldwide, Inc., 532

The undersigned also notes that top-hat plans are exempt from ERISA's provisions on participation, v e s t i n g and funding. See 29 U.S.C. § 1051(2) (excluding top-hat plans from ERISA's participation and vesting p r o v is io n s codified at 29 U.S.C. §§ 1051-1061); 29 U.S.C. § 1081(a)(3) (excluding top-hat plans from ERISA's f u n d i n g provisions codified at 29 U.S.C. §§ 1081-1086).

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F .3 d 101, 108 (2 n d Cir. 2008) (noting that top hat plans are exempt from the fiduciary re sp o n s ib ility requirements finding that "to the extent Paneccassio's ERISA claim relies o n an assertion of breach of fiduciary duty, it was properly dismissed.") . F o r the following reasons, the undersigned finds that McZeal's plan qualifies as a top -ha t plan. Therefore, his motion for summary judgment on his breach of fiduciary d u ty claims asserted under ERISA should be denied, and his claims under 29 U.S.C. §§ 1 1 0 4 , 1105 and 1109 should be dismissed because these sections do not apply to top-hat plans. A top-hat plan is defined in ERISA as "a plan which is unfunded and is maintained b y an employer primarily for the purpose of providing deferred compensation for a select g r o u p of management or highly compensated employees." 29 U.S.C. § 1101(a)(1). Thus, in order to establish whether a plan qualifies as a top-hat plan exempt from ERISA's f id u c ia ry responsibility provisions, the Fifth Circuit has instructed that the plan "must be (1 ) unfunded and (2) maintained by an employer primarily for the purpose of providing d e f erre d compensation for a select group of management or highly compensated e m p lo ye e s." Reliable, 295 F.3d at 512. The "Unfunded" Requirement E R IS A does not define what makes a plan funded or unfunded for determining q u a lif ic a tio n as a top hat plan. However, in Reliable, the Fifth Circuit addressed whether a plan is "funded" for purposes of exemption from ERISA's fiduciary provisions. Relying

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o n opinions from the Second and Eighth Circuits, as well as a Department of Labor A d v is o ry Opinion, the court found that courts must "look to the surrounding facts and c irc u m s ta n c es , including the status of the plan under non-ERISA law" and also "identify w h e th e r a policy is funded by a res separate from the general assets of the company." R e lia b le , 295 F.3d at 514. In so finding, the Reliable court noted that the Second Circuit had previously held th a t a plan was unfunded in a situation where the benefits were paid "solely from the g e n e ra l assets of the employer." Reliable, 295 F.3d at 513 quoting Demery, 216 F.3d at 2 8 7 quoting Gallione, 70 F.3d at 725. The court also favorably cited the standard adopted b y the Second Circuit, originally set forth in Miller v. Heller, 915 F.Supp. 651 (S .D .N .Y .1 9 9 6 ), that is, whether the beneficiary could "`establish, through the plan d o c u m e n ts , a legal right any greater than that of an unsecured creditor to a specific set of f u n d s from which the employer is, under the terms of the plan, obligated to pay the d e f erre d compensation.'" Id. quoting Demery, 216 F.3d at 287 quoting Miller, 915 F .S u p p . at 660. The Reliable court also noted that the Eighth Circuit had previously found that "[f]unding implies the existence of a res separate from the ordinary assets of the c o rp o ra tio n . . ." and, accordingly, distinguished unfunded from funded plans "when they a re paid from the employer's general assets . . . with no separate res." Id. quoting D e p e n d a h l v. Falstaff Brewing Corp., 653 F.2d 1208, 1214 (8th Cir.1981) and Belsky v.

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F ir s t National Life Insurance Co., 818 F.2d 661, 663 (8th Cir.1987). The Reliable court additionally cited a Department of Labor ("DOL") advisory o p in io n that "any determination of the `unfunded' status of an `excess benefit' or `top hat' p la n of deferred compensation requires an examination of the surrounding facts and circu m stan ce s", as well the tax consequences of such plans, noting that a plan is more lik e ly to be regarded as unfunded if the beneficiaries under the plan do not incur tax lia b ility during the year that the contributions to the plan are made. Id. at 513-514 q u o tin g Op. Dep't Labor 92-13 A (May 19, 1992) and Miller, 915 F.Supp. at 659. M cZ ea l's plan is unquestionably unfunded. According to the plan, McZeal's b e n e f its were to be paid from the general corporate assets of SCC 9 ; there were no assets o r separate res set aside for, allocated to, or procured by, SCC to fund the plan or to serve a s a source of security for the payments to be made thereunder. [affidavits of John F ree m an , rec. doc. 36-2, ¶ 4 and 5; 95-2, ¶ 8, 10-12]. Indeed, McZeal's benefits were p a id out of the general corporate assets from his retirement in 1995 until December 2004 w h e n SCC ran into financial difficulties and stopped making the payments to McZeal. [ a f f id a v it of John Freeman, rec. doc. 95-2, ¶ 9; affidavit of McZeal, rec. doc. 84-2, ¶ 12]. As such, McZeal has no legal right any greater than that of an unsecured creditor to a specific set of funds from which SCC is, under the terms of the plan, obligated to pay

The source of financing for the plan is also expressly set forth in the attachments to the contract as follows: " C o s t of Plan ...The entire cost of the benefits under the agreement plan is paid by the company (Southern C o n s u m e r s Cooperative)." [rec. doc. 36-2, pg. 4].

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h im . Moreover, there is no evidence in the record suggesting that McZeal incurred tax liab ility in conjunction with the plan, during any of the years that the plan was in e x is te n c e prior to the time that payments were initially made thereunder, that is, from 1 9 9 1 when the plan was adopted until 1995 when McZeal retired and began receiving b e n e f its under the plan. The "Deferred Compensation" Requirement V e ry few courts of appeal have had the occasion to address the meaning of " d e fe rre d compensation" in the context of a top-hat plan under ERISA. However, the C o u rt finds one particular case from the Ninth Circuit instructive, Duggan v. Hobbs, 99 F .3 d 307 (9 th Cir. 1996). In Duggan, the plaintiff, Duggan, who had been employed by C h e m w o rld for eight years, was Chemworld's top salesman, as well as the only employee to ever have received retirement benefits from the company. Duggan, 99 F.3d at 309. Prior to his retirement, Duggan entered into an agreement wherein the company agreed to p a y him retirement benefits of $1,056.88 per month for life. Id. According to the a g re e m e n t, these benefits were to be paid to Duggan, in part, in consideration for his ye a rs of loyal service. Id. These payments were made for nine years, until Chemworld w a s no longer financially able to pay these benefits. Id. In finding that the plan provided "deferred compensation", the Ninth Circuit found a s follows: T h e payments due to Duggan under the Agreement are deferred c o m p e n sa tio n because they provide compensation for services substantially 14

a f te r the services were rendered. According to the Agreement, the . . . p a ym e n ts were partially "in consideration for [Duggan's] years of dedicated s e rv ic e [and] loyalty to the company." Chemworld was providing Duggan d e f erre d compensation (monthly payments for life) for his past services and l o ya l t y. Id . at 311. T h e court additionally found that "[t]he fact that Duggan and Chemworld entered in to the Agreement after Duggan had already provided some of the services for which he w a s being compensated does not change our view that the Agreement provides for d e f erre d compensation. The compensation was deferred because Duggan did not receive it until well after he rendered most of the services for which he was being compensated." Id. I n further support of its position, the court cited a leading treatise as follows, D ef erred compensation arrangements are generally established either before o r at the time of the performance of service to which the compensation re la te s. Certain arrangements, especially those that provide supplemental re tire m e n t income benefits, can be adopted after the service has been r e n d e re d . Id . quoting Andrew J. Lawlor and Jeffrey Perlmuter, "Nonqualified Deferred C o m p e n s a tio n for Key Executives," in Employee Benefits Handbook, § 14.01 (Jeffrey D. M am o rsky ed., 3rd ed. 1991) (emphasis added). F in a lly, the court found that Department of Treasury regulations promulgated u n d e r the Internal Revenue Code were consistent with this view. Those regulations in d ica te that compensation is deferred when it is received by the employee significantly a f te r the services are rendered, and, accordingly, a plan defers the receipt of compensation 15

"to the extent it is one under which an employee receives compensation or benefits more th a n a brief period of time after the end of the employer's taxable year in which the s e rv ic e s creating the right to such compensation or benefits are performed." Id. at 3113 1 2 citing Temporary Treasury Regulation Section 1.404(b)-1T, 26 C.F.R. § 1.404(a)-(1). T h e court finds Duggan persuasive and adopts the reasoning therein. The a g re e m e n t negotiated by McZeal in this case, like that in Duggan, provides lifetime re tire m e n t benefits to McZeal "in partial and additional consideration for his thirty four ye a rs of past service." [rec. doc. 36-2, pg. 1]. The agreement further explains that the " sp e c ia l retirement pension" is given to McZeal "because of his labor for employer" and " in view of all the past years in need of being compensated therefore." [Id.]. As was the c a se with substantially similar language in Duggan, this language leads to the conclusion th a t SCC was providing McZeal with "deferred compensation" for purposes of d e te rm in in g the existence of a top hat plan; SCC agreed to pay McZeal deferred c o m p e n s a tio n (monthly benefits for life) for his past services and loyalty to the company a n d McZeal, in turn, agreed to accept these deferred payments incrementally over his lif e tim e .10

The undersigned acknowledges that an argument can be made that the "deferred compensation" r e q u i r e m e n t is not present in this case. My research has failed to disclose any Fifth Circuit case which discusses this r e q u i r e m e n t in detail. In Reliable, the Fifth Circuit recognized the existence of the requirement, but did not discuss w h a t constituted "deferred compensation". Id. at 512-513. T h e Third Circuit, in In Re IT Group Inc., 448 F.3d 661 (3d Cir. 2006), relying on a tax treatise, David A . C a r t a n o , Taxation of Compensation & Benefits, said that a deferred compensation plan "is an agreement by the e m p l o y e r to play pay compensation to employees at a future date. The main purpose of the plan is to defer taxes" to a time, after retirement, when the employee is in a lower tax bracket, thereby reducing his taxes. Id. at 664. A review of the plan at issue here does not disclose any intent to defer McZeal's taxes. However, the

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T h e "Selectivity" Requirement "[E]mployees are part of a `select group' under section 1101(a) (1) where the e m p lo ye r's retirement-plan coverage is limited to a small percentage of the employer's e n tire work force." Duggan, at 99 F.3d at 312. On the facts of the present case, the selectivity requirement is clearly met. The " sp e c ial retirement pension" was not offered to any other employee; rather, the sole e m p lo ye e covered under the plan is McZeal. [rec. doc. 36-2, pgs. 1-2; affidavit of John F r e e m a n , rec. doc. 36-2, ¶ 3]. Furthermore, John Freeman, in his affidavit, testified that n o other employee of SCC received any such contract or pay. [rec. doc. 36-2, ¶ 3]. M o re o v e r, it is beyond dispute that McZeal served as general manager and/or chief e x e cu tiv e officer of SCC from approximately 1960 until his retirement in 1995. [ a f f id a v its of John Freeman, rec. doc. 36-2, ¶ 7; rec. doc. 95-2, ¶ 6 and 13]. The affidavit te stim o n y of Mr. Freeman, and the plain language of the plan, constitute sufficient e v id e n c e supporting the selective nature of the plan. [Id.; rec. doc. 36-2, pgs 1-8]. The p la n was offered to a sole employee who occupied the company's top managerial p o s itio n . " B u t the `select group' requirement includes more than a mere statistical analysis." D u g g a n , 99 F.3d at 312. The Department of Labor has explained that the special top-hat

court's decision in IT Group Inc., does not foreclose the analysis undertaken, nor the result reached, by the Ninth C ir c u it in Duggan. T h e facts in this case are much closer to the facts in Duggan and, therefore, the undersigned finds the r e a s o n i n g in Duggan persuasive. The undersigned acknowledges, however, that the issue is a close one.

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re g im e was intended to apply to employees who "by virtue of their position or c o m p e n s a tio n level, have the ability to affect or substantially influence, through n e g o tia tio n or otherwise, the design and operation of their deferred compensation plan . . ." Id. at 312 citing DOL Op. Letter 90-14A. "Ability to negotiate is an important c o m p o n e n t of top hat plans . . . ." Demery, 216 F.3d at 289. Indeed, "top hat plans have b e e n exempted from ERISA's substantive requirements `because Congress deemed to p -le v e l management, unlike most employees, to be capable of protecting their own p e n sio n expectations.' " Id. quoting Gallione, 70 F.3d at 727. The record clearly establishes McZeal's ability to affect and substantially influence th e design and operation of his plan. Not only did McZeal negotiate the original terms of th e agreement and personally sign it, when a dispute arose as to the "proper interpretation a n d application of some of the terms, clauses and paragraphs" of the plan, the parties re n e g o tia te d the terms of the plan and entered into an "Addendum to Contract." [rec. doc. 3 6 -2 , pg. 1-8]. In this Addendum, the parties agreed to a more specific plan formula w h e re b y McZeal and his wife's benefits would be calculated, as well as the exact amount o f "monthly installments" each would receive. [rec. doc. 36-2, pg. 6-7]. The parties a d d itio n a lly agreed that McZeal could elect to provide his wife with a survivor's benefit u n til her death contingent on a small reduction in his benefits, that McZeal and/or his w if e ' s monthly benefits would be subject to cost of living adjustments equal to those p ro v id e d by the Social Security Administration, but only if the company was making a

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p ro f it, and that McZeal's periodic re-employment on a contract basis with SCC would not s u s p e n d payment of benefits. [Id. at pg. 7-8]. Thus, it is clear that McZeal's high level managerial position permitted him to n e g o tia te the terms of his plan with SCC, thereby affecting and substantially influencing th e design and operation of his plan, while protecting his own pension expectations. Given this evidence, the undersigned finds that the selectivity requirement is satisfied. In light of the above, the undersigned finds that McZeal's plan qualifies as top-hat p lan . Because McZeal's plan is a top-hat plan, ERISA's fiduciary responsibility p ro v is io n s do not apply. Therefore, McZeal's claims under 29 U.S.C. § 1104, 1105 and 1 1 0 9 fail as a matter of law; summary judgment may not be granted and these claims m u s t be dismissed.1 1 D e c la r a to r y Judgment T o the extent that by this Motion plaintiff seeks "entry of [a] declaratory judgment d e c la rin g that the defendants have breached their fiduciary duties under ERISA" [rec. d o c . 84, pg. 4], for the reasons set forth above, declaratory judgment may not be granted, a n d this claim must likewise be dismissed. Louisiana State Law Negligence Claims P la in tif f also seeks summary judgment on his fifth claim for relief wherein he a ss e rts a Louisiana state law claim for negligent breach of fiduciary duty. Although
To the extent that plaintiff intends to bring separate claims for "ERISA negligence", this ruling is intended t o dispose of all such claims.
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u n c le a r, he apparently also seeks summary judgment on Louisiana state law negligence c la im s against the individual fiduciary defendants for failing to administer or monitor the p lan , make payments under the plan, make disclosures regarding the plan and to avoid c o n f lic ts of interest which may be adverse to the plan. Summary Judgement on these c la im s cannot be granted, however, because these claims are completely preempted by E R IS A , and, accordingly, should be dismissed. E R IS A expressly "supersede[s] any and all State laws insofar as they may . . . re late to any employee benefit plan . . ." 29 U.S.C. § 1144(a); Reliable, 295 F.3d at 515. T h is provision is "deliberately expansive, and designed to `establish pension plan reg u lation as exclusively a federal concern."' Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 4 6 , 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987) quoting Alessi v. Raybestos-Manhattan, In c ., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed.2d 402 (1981).1 2 Because of this e x p a n siv e n e ss , the Supreme Court has given "the phrase `relate to' . . . its broad c o m m o n -s e n se meaning, such that a state law `relate[s] to' a benefit plan in the normal s e n s e of the phrase, if it has a connection with or reference to such a plan." Metropolitan L ife Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728 (1 9 8 5 ) (some internal quotations and citation omitted). Thus, "a state law may `relate to'

In Alessi, the Supreme Court observed that "[t]he only relevant state laws, or portions thereof, that survive t h i s pre-emption provision are those relating to plans that are themselves exempted from ERISA's scope." P a n e c c a s s i o , 532 F.3d at 113 citing Alessi, 451 U.S. at 523 n. 20, 101 S.Ct. 1895. Preemption thus applies to every p l a n covered by ERISA, which necessarily includes top-hat plans. Id.

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a benefit plan, and thereby be pre-empted, even if the law is not specifically designed to a f f e c t such plans, or the effect is only indirect." Ingersoll-Rand Co. v. McClendon, 498 U .S . 133, 139, 111 S.Ct. 478, 483, 112 L.Ed.2d 474 (1990); District of Columbia v. G r e a te r Washington Bd. of Trade, 506 U.S. 125, 129-30, 113 S.Ct. 580, 121 L.Ed.2d 513 (1 9 9 2 ). Furthermore, even where a state law "relates to" an ERISA plan, but would p ro v id e relief unavailable under ERISA's civil enforcement provisions, ERISA p re e m p tio n applies. See Ingersoll-Rand Co., 498 U.S. at 144-145; Wood v. Prudential In s . Co. of America, 207 F.3d 674, 678 (3d Cir.2000). A s to state common law claims, ERISA preempts those that "do not attempt to re m e d y any violation of a legal duty independent of ERISA." See Aetna Health Inc. v. D a v ila , 542 U.S. 200, 214, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004); Ingersoll-Rand Co. v . McClendon, 498 U.S. 133, 145, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990) (ERISA p re e m p ts claims that "purport [ ] to provide a remedy for the violation of a right expressly g g u a ra n te e d by [ERISA]"). Thus, to determine whether a state law claim "relates to" an E R IS A top-hat plan, the Fifth Circuit has directed courts to consider whether "the u n d e rlyin g conduct . . . [can] be divorced from its connection to the employee benefit p la n ." Reliable, 295 F.3d at 515-516 citing Hook v. Morrison Milling Co., 38 F.3d 776, 7 8 3 (5 th Cir. 1994) quoting Christopher v. Mobil Oil Corporation, 950 F.2d 1209, 1220 (5 th Cir.1992).

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M c Z e a l's allegations of negligent conduct in this case cannot be divorced from its c o n n e c tio n to the plan and are therefore preempted. Clearly, plaintiff's state law claims a ll derive from his participation in the plan. Indeed, plaintiff's state law causes of action a re crafted as an alternative means to recover for breaches of duties applicable solely b e c a u se of the existence of an ERISA plan. In other words, in the absence of an ERISA p la n , none of these alleged duties would be owed either to the plan or to plaintiff. To the c o n tra ry, the defendant's potential liability derives entirely from duties and obligations im p o s e d under ERISA for ERISA regulated plans. Moreover, although ERISA exempts these responsibilities from its requirements f o r top-hat plan administrators and fiduciaries, McZeal is nevertheless not entitled to b r in g state law causes of action for these same breaches. To the contrary, it is because E R IS A exempts top-hat administrators from fiduciary duties imposed on other plan a d m in is tra to rs and fiduciaries that plaintiff cannot maintain a state law cause of action for n e g lig e n c e or negligent breach of fiduciary duty. See Goldstein, 251 F.3d at 443 ("a toph a t plan administrator has no fiduciary responsibilities " and accordingly, is not bound by f id u c iar y standards); Paneccasio, 532 F.3d at 113-114; Demery, 216 F.3d at 290; D u g g a n , 99 F.3d at 313-314. For this reason, courts routinely find such claims c o m p le te ly preempted. See Foley v. American Electric Power, 425 F.Supp.2d 863, 8688 6 9 (S.D. Ohio 2006) (dismissing as preempted state law conversion, constructive trust an d breach of fiduciary duty claims because all claims stemmed from the plaintiff's

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p a rticip a tio n in an ERISA top-hat plan); Starr v. MGM Mirage, 2006 WL 3290299, *3 (D .N e v . 2006) (dismissing as preempted plaintiff's state law claims for breach of fid u ciary duty, fraud, oppression and malice relating to a top-hat plan); Straney v. G e n e r a l Motors Corp., 2007 WL 3346149, *10 (E.D. Mich 2007), vacated on other g r o u n d s in part on rehearing by, 2008 WL 162554(E.D. Mich. 2008) (dismissing as p re e m p te d state law claims for breach of contract, fraud and innocent representation in a s u it involving a top-hat plan) Lawson v. Nationwide Mut. Ins. Co., 2005 WL 1533102, * 6 - 7 (E.D.Pa. 2005) (dismissing as preempted state law breach of contract, unjust e n ric h m e n t and breach of fiduciary duty claims asserted in connection with a top-hat p lan); Boulet v. Fluor Corp., 2005 WL 2860993, *12 (S.D. Tex. 2005) (dismissing as p re e m p te d state law claims of breach of contract, breach of fiduciary duty and claims for d isg o rg e m e n t of profits in suit involving a top-hat plan); Moore v. Raytheon Corp., 314 F .S u p p .2 d 658, 663-664 (N.D. Tex. 2004) (dismissing as preempted all state law claims th a t related to a top-hat plan) E R IS A 's sweeping preemptive scope mandates this result. 29 U.S.C. § 1144(a). H ad Congress envisioned a cause of action for negligence or negligent breach of fiduciary d u ty against top-hat plan administrators or fiduciaries, the ERISA statute would provide f o r such a claim. Great-West Life & Annuity Inc. Co. v. Knudson, 534 U.S. 204, 209 (2 0 0 2 ) (noting that "ERISA's carefully crafted and detailed enforcement scheme provides stro n g evidence that Congress did not intend to authorize other remedies that it simply

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f o rg o t to incorporate expressly.") (internal quotations omitted). This Congress did not do. A c c o rd in g ly, summary judgment on plaintiff's fifth claim for relief and all other p u r p o r te d claims for relief asserted under Louisiana state law cannot be granted 1 3 ; these c la im s are completely preempted by ERISA and should therefore be dismissed. Equitable Relief under § 1132(a)(3) 14 F u r th e r, even if McZeal could maintain an action for breach of fiduciary duty, the e q u ita b le relief sought under § 1132(a)(3) is not available in this case. Accordingly, s u m m a ry judgement cannot be granted as a matter of law, and these claims should be d is m is s e d . T h e available remedies under subsection (a)(3) are limited to "appropriate e q u ita b le relief." Varity, 516 U.S. at 515. In Mertens, the Supreme Court held that the p h ra se "other appropriate equitable relief" in this section refers to remedies "typically a v a ila b le in equity", but not to compensatory or punitive damages. Cunningham, 105 F.3d 6 5 5 at *1 citing Mertens; Amschwand v. Spherion Corp., 505 F.3d 342, 345 (5 th Cir. 2 0 0 7 ) citing Mertens, 508 U.S. at 256; Great West v. Knudson, 534 U.S. 204, 209-210, 1 2 2 S.Ct. 708 (2002). In equity, "a plaintiff could seek restitution . . ., ordinarily in the f o rm of a constructive trust or an equitable lien, where money or property identified as
13

McZeal's pleadings are voluminous and somewhat confusing; this ruling is intended to dispose of all p l a i n t i f f' s state law claims. 29 U.S.C. § 1132(a)(3) authorizes "a participant, beneficiary, or fiduciary (A) to enjoin any act or practice w h i c h violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable r e lie f (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan." 29 U . S . C . § 1132(a)(3).
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b e lo n g in g in good conscience to the plaintiff could be clearly traced to particular funds or p ro p e rty in the defendant's possession." Great West, 534 U.S. at 213. "A court of equity c o u ld then order a defendant to transfer title (in the case of the constructive trust) or to g iv e a security interest (in the case of the equitable lien) to a plaintiff who was, in the eyes o f equity, the true owner. Great West, 534 U.S. at 213-214 quoting Restatement of R estitutio n , § 215, Comment a, p. 867 (1936). T h u s , for "appropriate equitable relief" under § 1132(a)(3), to wit, the imposition o f a constructive trust or an equitable lien, the plaintiff must seek to restore money or p ro p e rty " identified as belonging in good conscience to the plaintiff" which can be c le a rly traced to "particular funds or property in the defendant's possession." Great West, 5 3 4 U.S. at 213; See also Amschwand, 515 F.3d at 347. The possession requirement was not met in Great West, because "the funds to w h ic h petitioners claim[ed] an entitlement" were not in the defendant's possession. Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 362, 126 S.Ct. 1869 (2006) c itin g Great West, 534 U.S. at 207; Pan-American Life Ins. v. Bergeron, 82 Fed.Appx. 3 8 8 , 391 (5 th Cir. 2003) (affirming dismissal of a § 1132(a)(3) action because "there e x is te d no `money or property identified as belonging in good conscience to [the plaintiff] w h ic h is clearly traceable to particular funds in [the defendant's] possession.'"). Here, plaintiff cannot demonstrate any money or property belonging in good c o n sc ie n c e to the plan (or himself) which can be clearly traced to "particular funds or

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p ro p e rty in [any of ] the defendant's possession" entitling the plan (or McZeal) to a c o n s tr u c tiv e trust or equitable lien. As previously stated, top-hat plans, such as McZeal's, a re unfunded. Therefore, they have no assets separate from the general corporate assets to which McZeal or the plan may claim entitlement. The "true owner" of the assets, in the e ye s of equity, are the corporation, SCC, not McZeal or McZeal's plan. As such, S u m m a ry Judgment on any such claim therefore cannot be granted as a matter of law. CONCLUSION F o r the reasons stated above, IT IS RECOMMENDED that the plaintiff's M o tio n s for Partial Summary Judgment [rec. docs. 74 and 84] be DENIED. IT IS F U R T H E R RECOMMENDED that all of plaintiff's claims under ERISA for breach of f id u c ia ry duties, his request for declaratory judgment and equitable relief under ERISA, a s well as plaintiff's negligence and all other claims asserted under Louisiana state law b e DISMISSED WITH PREJUDICE. F a ilu r e to file written objections to the proposed factual findings and/or the p r o p o s e d legal conclusions reflected in this Report and Recommendation within ten (1 0 ) days following the date of its service, or within the time frame authorized by F .R .C .P . 6(b), shall bar an aggrieved party from attacking either the factual findings o r the legal conclusions accepted by the District Court, except upon grounds of plain e r r o r . Douglass v. United Services Automobile Association, 79 F.3d. 1415 (5th Cir. 1 9 9 6 ).

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C o u n se l are directed to furnish a courtesy copy of any objections or responses to th e District Judge at the time of filing. S ig n e d March 20, 2009, at Lafayette, Louisiana.

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