Lee et al v. Verizon Communications Inc et al

Filing 77

MEMORANDUM OPINION AND ORDER granting 64 Motion to Dismiss, filed by Verizon Employee Benefits Committee, Verizon Corporate Services Group Inc, Verizon Investment Management Corp, Verizon Communications Inc, Verizon Management Pension Plan; denying without prejudice as moot 71 Motion to Amend filed by Joanne McPartlin, Edward Pundt, William Lee. Plaintiffs are granted 30 days from the date of the memorandum opinion and order to file a second amended complaint. (Ordered by Chief Judge Sidney A Fitzwater on 6/24/2013) (Chief Judge Sidney A Fitzwater)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
WILLIAM LEE, JOANNE
MCPARTLIN, and EDWARD PUNDT,
Individually, and as Representatives of
plan participants and plan beneficiaries
of the VERIZON MANAGEMENT
PENSION PLAN,

§
§
§
§
§
§
§
Plaintiffs,
§
§ Civil Action No. 3:12-CV-4834-D
VS.
§
§
VERIZON COMMUNICATIONS INC., §
et al.,
§
§
Defendants. §
MEMORANDUM OPINION
AND ORDER
Defendants move under Fed. R. Civ. P. 12(b)(1) and/or (b)(6) to dismiss this ERISAbased1 class action arising from the decision of a pension plan to purchase a single premium
group annuity contract from a third party to settle approximately $7.4 billion of the plan’s
pension liabilities to certain plan beneficiaries. For the reasons that follow, the court grants
defendants’ motion but also permits plaintiffs to replead.2
I
This is a certified class action brought by plaintiffs William Lee, Joanne McPartlin,

1

The Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1461.

2

On April 26, 2013 plaintiffs filed a motion for leave to file amendment to the
operative amended complaint for class action relief under ERISA. Because the court is
granting plaintiffs leave to amend, their motion is denied without prejudice as moot.

and Edward Pundt (collectively, “plaintiffs” unless the context otherwise requires),
individually and as representatives of plan participants and plan beneficiaries of the Verizon
Management Pension Plan (the “Plan”). Plaintiffs seek declaratory and injunctive relief
against defendants Verizon Communications Inc. (“VCI”), Verizon Corporate Services
Group Inc., Verizon Employee Benefits Committee, Verizon Investment Management Corp.,
and Verizon Management Pension Plan (collectively, “Verizon,” unless the context otherwise
requires).
In October 2012 VCI entered into a Definitive Purchase Agreement with the
Prudential Insurance Company of America (“Prudential”)3 and others,4 under which the Plan
agreed to purchase a single premium group annuity contract from Prudential to settle
approximately $7.4 billion of the Plan’s pension liabilities.5 To accomplish the transaction,
Verizon amended the Plan to direct that it purchase one or more annuity contracts according
to certain criteria. Under the amendment, the annuity contract applied to Plan participants
who had begun receiving Plan payments before January 1, 2010, and it required that the
3

The parties have stipulated to the dismissal without prejudice of Prudential.

4

Verizon Investment Management Corp. and Fiduciary Counselors Inc. were also
parties to the agreement.
5

In deciding Verizon’s Rule 12(b)(6) motion, the court construes the amended
complaint in the light most favorable to plaintiffs, accepts as true all well-pleaded factual
allegations, and draws all reasonable inferences in plaintiffs’ favor. See, e.g., Lovick v.
Ritemoney Ltd., 378 F.3d 433, 437 (5th Cir. 2004). “The court’s review [of a Rule 12(b)(6)
motion] is limited to the complaint, any documents attached to the complaint, and any
documents attached to the motion to dismiss that are central to the claim and referenced by
the complaint.” Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th
Cir. 2010).
-2-

annuity provider fully guarantee and pay each pension in the same form as did the Plan.
Plaintiffs neither allege nor contend that the annuity transaction will have any effect on the
amount of their benefit payments or their right to payments. Instead, they object in part on
the basis that removal from the Plan means they no longer receive ERISA protections and
rights and that they have lost the pension protection provided by the Pension Benefit
Guaranty Corporation (“PBGC”). The annuity transaction was executed in December 2012,
a few days after the court denied plaintiffs’ application for a temporary restraining order
(“TRO”) and preliminary injunction to enjoin Verizon from consummating the transaction.
See Lee v. Verizon Commc’ns Inc., 2012 WL 6089041, at *1 (N.D. Tex. Dec. 7, 2012)
(Fitzwater, C.J.) (“Lee I”).6
Under the terms of the transaction, Verizon transferred to Prudential Verizon’s
responsibility to provide pension benefits to approximately 41,000 retirees. These 41,000
transferred retirees are no longer Plan participants. The participants and beneficiaries not
covered by the transaction—who number approximately 50,000—remain part of the Plan.
On the parties’ joint motion, the court certified each group as a class, defined as a Transferee
Class and a Non-Transferee Class.
The Transferee Class alleges the following three claims: Verizon failed to disclose the
possibility of the annuity transaction in the summary plan description (“SPD”), in violation
of ERISA § 102(b), 29 U.S.C. § 1022(b); Verizon breached its fiduciary duties under ERISA

6

Because Lee I explains much of the law and the relevant Plan terms, the court restates
only what is necessary to understand today’s memorandum opinion and order.
-3-

§ 404(a), 29 U.S.C. § 1104(a); and Verizon discriminated against the members of the
Transferee Class, in violation of ERISA § 510, 29 U.S.C. § 1140. The Non-Transferee Class
brings a claim via ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), for relief under ERISA § 409,
29 U.S.C. § 1109. The Non-Transferee Class alleges that Verizon breached its fiduciary
duties and depleted the Plan’s assets by paying an excessive and unreasonable amount of
expenses to complete the annuity transaction.
Verizon moves to dismiss the Transferee Class’s claims under Rule 12(b)(6) and to
dismiss the Non-Transferee Class’s claim under Rule 12(b)(1) and (b)(6).
II
To survive a motion to dismiss under Rule 12(b)(6), plaintiffs must plead “enough
facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility
standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer
possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550 U.S. at 555
(“Factual allegations must be enough to raise a right to relief above the speculative level[.]”).
“[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not ‘shown’—‘that the
pleader is entitled to relief.’” Iqbal, 556 U.S. at 679 (alteration omitted) (quoting Rule
8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading must contain “a short and plain
-4-

statement of the claim showing that the pleader is entitled to relief.” Although “the pleading
standard Rule 8 announces does not require ‘detailed factual allegations,’” it demands more
than “‘labels and conclusions.’” Id. at 678 (quoting Twombly, 550 U.S. at 555). And “‘a
formulaic recitation of the elements of a cause of action will not do.’” Id. (quoting Twombly,
550 U.S. at 555).
III
The court turns first to Verizon’s Rule 12(b)(6) motion to dismiss the Transferee
Class’s ERISA § 102(b) claim.
The Transferee Class maintains that Verizon violated § 102(b) by not disclosing in
the SPD that it retained the right to remove participants from the Plan by transferring the
pension obligations to an insurance company. Section 102(b) requires that an SPD contain
certain information, including a description of “circumstances which may result in . . . loss
of benefits.” In denying plaintiffs’ application for a TRO and preliminary injunction, the
court held in Lee I that this claim was not likely to succeed on the merits because plaintiffs
had failed to allege or show that the annuity transaction would result in a loss of the amount
or right to benefits, and because § 102(b) only requires a description of existing plan terms,
not a disclosure of future plan changes, such as the amendment in question that directed the
annuity purchase.7 See Lee I, 2012 WL 6089041, at *2-3.

7

The Transferee Class asserts that, because Verizon maintains that it always had the
right to conduct this annuity transaction, this means that this was an existing circumstance
that might result in a loss of benefits, and Verizon was therefore obligated to disclose it. The
court disagrees. Verizon does not maintain that it could have completed the annuity
-5-

The Transferee Class also maintains that § 102(b) requires a description of the
circumstances under which a participant may be removed from the Plan.8 It relies solely on
its interpretation of an ERISA regulation that prescribes that an SPD must include “a
statement clearly identifying circumstances which may result in . . . loss . . . of any benefits
that a participant or beneficiary might otherwise reasonably expect the plan to provide on the
basis of the description of benefits required by paragraphs (j) and (k) of this section.” 29
C.F.R. § 2520.102-3(l) (2012) (emphasis added). The Transferee Class interprets this
regulation to require that an SPD describe when benefits will not be provided by the Plan.
The Transferee Class made a similar unavailing argument in Lee I—that the Plan’s mandate
in § 8.5 to use its assets exclusively “to provide benefits under the Plan” meant that the Plan
itself must continue to provide the benefits. See Lee I, 2012 WL 6089041, at *3. The
Transferee Class mistakenly interprets the regulation’s language “circumstances which may
result in . . . loss . . . of any benefits that a participant or beneficiary might otherwise
reasonably expect the plan to provide,” 29 C.F.R. § 2520.102-3(l) (emphasis added) to mean
that a change in the payer of plan benefits is a circumstance that results in a loss of plan
benefits provided by the plan, even if those benefits are provided in full. Instead, the

transaction without amending the Plan. And even if Verizon could have done so, and this
meant that removal of the Transferee Class from the Plan was an existing circumstance, this
argument still fails because the Transferee Class does not allege that the annuity transaction
might result in a loss of benefits.
8

This argument is an iteration of one running throughout the Transferee Class’s
case—that its members had a right to continued participation in the Plan.
-6-

regulation is properly interpreted to mean that an SPD must clearly identify circumstances
that might result in an actual loss of benefits that a participant or beneficiary might otherwise
reasonably expect the plan to provide. This understanding is supported by interpreting the
words “expect the plan to provide” in the context of the phrase “benefits that a participant
or beneficiary might otherwise reasonably expect the plan to provide on the basis of the
description of benefits required by paragraphs (j) and (k) of this section.” 29 C.F.R.
§ 2520.102-3(l) (emphasis added). Understood in this broader context, it is clear that the
regulation is focused on the benefits to be provided under the Plan rather than on the source
of the benefits per se and does not relate to whether the Plan itself must continue to pay the
benefits.
Because the Transferee Class has not alleged that the SPD lacked any description that
the SPD was required to include, the court dismisses the § 102(b) claim.
IV
The court next considers the Transferee Class’s claim, brought under ERISA
§ 502(a)(3), that Verizon breached its fiduciary duties, in violation of ERISA § 404(a).
A
The Transferee Class contends that Verizon’s plan amendment and the resulting
annuity transaction are fiduciary functions, and it alleges that Verizon breached its fiduciary
duties by violating Plan terms, avoiding ERISA rules that would have applied had the Plan
been terminated, and failing to notify Plan participants or beneficiaries or ask for their
consent. The Transferee Class posits that Verizon was not acting in the best interest of the
-7-

class members because there is a risk that Prudential will fail, and by removing the class
members from the Plan, they have lost the pension guarantee provided by the PBGC. The
Transferee Class also maintains that the annuity transaction is not expressly authorized by
any ERISA provision or regulation.
Verizon asserts that amending the Plan and undertaking the annuity transaction are
not fiduciary functions and, therefore, that the Transferee Class does not have a claim under
§ 404(a). Moreover, Verizon maintains that it did not violate any Plan terms and that ERISA
regulations authorize an annuity purchase in these circumstances.9

9

The parties dispute whether ERISA regulations expressly authorize an annuity
purchase that removes a group of participants and beneficiaries from a plan without
terminating the plan. The Transferee Class does not point to any regulation that prohibits it,
and the court has found none. But neither does the authority on which Verizon relies
expressly authorize an annuity purchase in these circumstances. Verizon relies on an ERISA
regulation and a Department of Labor interpretive bulletin. The ERISA regulation, 29 C.F.R.
§ 2510.3-3(d)(2)(ii) (2012), provides that individuals are no longer plan participants if, inter
alia, their entire benefit rights are fully guaranteed by an insurance company. The
interpretive bulletin states that this regulation recognizes that a plan can transfer pension
liabilities by purchasing an annuity from an insurance company, and the bulletin lists
circumstances when an annuity purchase might occur:
Pension plans purchase benefit distribution annuity contracts in
a variety of circumstances. Such annuities may be purchased for
participants and beneficiaries in connection with the termination
of a plan, or in the case of an ongoing plan, annuities might be
purchased for participants who are retiring or separating from
service with accrued vested benefits.
Interpretive Bulletins Relating to the Employee Retirement Income Security Act of 1974, 60
Fed. Reg. 12328, 12328 (Mar. 6, 1995). Although this description of available circumstances
does not purport to limit when an annuity purchase can be made, neither does it expressly
authorize what Verizon did here.
-8-

B
The threshold issue is whether Verizon engaged in fiduciary functions when it
amended the Plan and entered into the annuity transaction. If it did not, then Verizon owed
no fiduciary duty and the Transferee Class’s § 404(a) claim fails as a matter of law. See
Pegram v. Herdrich, 530 U.S. 211, 226 (2000) (“In every case charging breach of ERISA
fiduciary duty, then, the threshold question is not whether the actions of some person
employed to provide services under a plan adversely affected a plan beneficiary’s interest,
but whether that person was acting as a fiduciary (that is, was performing a fiduciary
function) when taking the action subject to complaint.”); see also Kirschbaum v. Reliant
Energy, Inc., 526 F.3d 243, 250-51 (5th Cir. 2008). The court has already held in Lee I that
Verizon did not engage in a fiduciary function when it amended the Plan. See Lee I, 2012
WL 6089041, at *4. But the Transferee Class’s allegations can also be construed as
challenging the implementation of the amendment directing the annuity purchase, which can
involve fiduciary obligations.
1
“A person is a fiduciary only ‘to the extent’ he has or exercises specified authority,
discretion, or control over a plan or its assets.” Kirschbaum, 526 F.3d at 251. This is
because, as ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), provides:
a person is a fiduciary with respect to a plan to the extent (i) he
exercises any discretionary authority or discretionary control
respecting management of such plan or exercises any authority
or control respecting management or disposition of its assets . . .
or (iii) he has any discretionary authority or discretionary
-9-

responsibility in the administration of such plan.
Fiduciary duties thus apply to management of a plan, management or disposition of its assets,
and discretionary authority in the administration of a plan. Excluded from fiduciary
responsibility are decisions of a plan sponsor to modify, amend, or terminate a plan.
Kirschbaum, 526 F.3d at 251; Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 443-44
(1999).
In general, an employer’s decision to amend a pension plan
concerns the composition or design of the plan itself and does
not implicate the employer’s fiduciary duties which consist of
such actions as the administration of the plan’s assets. ERISA’s
fiduciary duty requirement simply is not implicated [for] a
decision regarding the form or structure of the Plan such as who
is entitled to receive Plan benefits and in what amounts, or how
such benefits are calculated.
Hughes Aircraft, 525 U.S. at 444-45 (citations omitted) (rejecting three fiduciary duty claims
challenging new benefit structure in plan because, “without exception, plan sponsors who
alter the terms of a plan do not fall into the category of fiduciaries” (citation and brackets
omitted)).
The Transferee Class maintains that Verizon acted in a fiduciary capacity because, by
removing approximately $8.4 billion in assets and 41,000 participants and beneficiaries from
the Plan, Verizon managed and disposed of plan assets. According to the Transferee Class,
Verizon’s exchanging pension plan assets from an ongoing plan for a group annuity contract
constitutes a fiduciary function. Verizon responds that, because plan terminations are not
considered fiduciary functions, yet terminations deal with disposing of plan assets, its

- 10 -

decision to undertake the annuity contract was not a fiduciary function.
The Transferee Class is conflating Verizon’s amendment of the Plan with its
executing of the annuity contract with Prudential. Because amending a plan is not a fiduciary
function, Verizon was not acting in a fiduciary capacity when it amended the Plan to direct
the purchase of an annuity for participants meeting certain criteria. What may be fiduciary
functions, however, are aspects of Verizon’s execution of the amendment’s directive. For
instance, the selection of the annuity provider is a fiduciary function. Beck v. PACE Int’l
Union, 551 U.S. 96, 102 (2007) (citing 29 C.F.R. §§ 2509.95-1, 4041.28(c)(3) (2006)).
2
The Transferee Class’s allegations complain of Verizon’s implementation of the
amendment directing the annuity purchase. They aver that Verizon’s expenses related to the
annuity transaction were unreasonable and excessive, in violation of the Plan’s exclusive
benefit rule. They also criticize Verizon for choosing a single insurer as the annuity provider
because Prudential might fail, and they maintain that Verizon’s consummating the annuity
transaction when the Plan was less than 80% funded harmed the Plan by causing it to fund
the entire payment to Prudential.
The Transferee Class alleges that the expenses Verizon paid with Plan assets to
complete the annuity transaction were unreasonable and excessive, in violation of § 8.5 of
the Plan. Section 8.5 provides, like the exclusive benefit rule in ERISA § 404(a), that Plan
assets “shall be used for the exclusive benefit of [participants and beneficiaries] and shall be
used to provide benefits under the Plan and to pay the reasonable expenses of administering
- 11 -

the Plan and the Pension Fund, except to the extent that such expenses are paid by
[Verizon].” Ps. App. 25 (emphasis added). The Transferee Class asserts that it was
unreasonable for Verizon to pay Prudential $1 billion more than the value of the transferred
pension liabilities, which was approximately $7.4 billion. It alleges that the additional $1
billion was applied to expenses like commissions and professional fees paid to third parties.10
Despite the size of the alleged additional payment, the court cannot reasonably infer
from the allegations of the amended complaint that it was unreasonable to pay Prudential
approximately $8.4 billion in total. The Transferee Class does not specify which aspects of
the extra $1 billion of expenditures were unreasonable, or how they were unreasonable—e.g.,
that the legal fees exceeded the reasonable rate for similar work or that any commissions
exceeded the market rate. The transaction involved providing billions of dollars in pension
benefits to a large group (41,000) of plan participants and beneficiaries. Without more than
essentially an allegation of the amount that Verizon paid and the conclusory assertion that
it was unreasonable, the Transferee Class has failed to state a plausible claim that Verizon
violated § 8.5’s exclusive benefit rule.11

10

The amended complaint is somewhat unclear regarding who received the additional
$1 billion from the Plan. The Transferee Class alleges that Prudential was paid the additional
$1 billion, but it also states that the payment was applied to pay consultants and legal fees
generated by third parties. Therefore, it is unclear whether the sum of $1 billion includes all
third-party costs related to the annuity transaction or only the payment to Prudential. This
is relevant in determining whether Verizon’s expenses were reasonable.
11

It is unclear what equitable relief the Transferee Class seeks for the alleged violation
of § 8.5 of the Plan. If the Transferee Class seeks restitution from Verizon to be recovered
by the Plan, the Transferee Class may lack standing to bring this claim. See infra § VI(C).
- 12 -

The Transferee Class also criticizes Verizon’s selection of Prudential as “the lone
insurer to issue an annuity,” on the basis that Prudential may fail. Am. Compl. ¶ 105. The
amended complaint also refers to a rating agency’s cautionary analysis of the effect of the
annuity transaction on Prudential. See id. at ¶ 106. The court does not construe these
criticisms as allegations that Verizon breached its fiduciary duty by choosing only Prudential
to fund the annuity, because the Transferee Class does not allege this specifically or assert
that Verizon should have selected another entity or multiple entities to provide the annuity
benefits.
The Transferee Class also alleges that Verizon harmed the Plan by consummating the
annuity transaction while the Plan was less than 80% funded, which it alleges violated
ERISA § 206(g)(3)(C), 29 U.S.C. § 1056(g)(3)(C), and Internal Revenue Code § 436(d)(3),
26 U.S.C. § 436(d)(3), and thus caused the Plan to pay the entire $8.4 billion to Prudential.
The Transferee Class does not explain how the Plan’s funding level affected the amount the
Plan needed to pay Prudential, and therefore has not stated a plausible claim that Verizon
harmed the Plan or breached a fiduciary duty on this basis.
Because Verizon’s amending the Plan is not a fiduciary function, and the Transferee
Class’s allegations concerning Verizon’s implementing the annuity transaction fail to state
a claim on which relief can be granted, the court dismisses the § 404(a) claim.
V
The Transferee Class’s final claim is that Verizon discriminated against the members
of the class, in violation of ERISA § 510, by removing them from the Plan while other
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retirees were allowed to remain.
In relevant part, § 510 makes it unlawful “for any person to discharge, fine, suspend,
expel, discipline, or discriminate against a participant or beneficiary . . . for the purpose of
interfering with the attainment of any right to which such participant may become entitled
under the plan, this subchapter, or the Welfare and Pension Plans Disclosure Act.” 29 U.S.C.
§ 1140. “To prevail on a § 510 claim, a plaintiff must prove that the defendant had a
‘specific intent to discriminate among plan beneficiaries on grounds . . . proscribed by section
510.’” Lee I, 2012 WL 6089041, at *5 (quoting McGann v. H & H Music Co., 946 F.2d 401,
408 (5th Cir. 1991)). Prohibited grounds for discrimination include the “specific intent to
retaliate for the exercise of an ERISA right, or to prevent attainment of benefits he would
become entitled to under the plan.” Chambers v. Joseph T. Ryerson & Son, Inc., 2007 WL
1944346, at *12 (N.D. Tex. July 2, 2007) (Fitzwater, J.) (citing Stafford v. True Temper
Sports, 123 F.3d 291, 295 (5th Cir.1997) (per curiam)).
In Lee I the court held that plaintiffs failed to demonstrate a substantial likelihood of
success on the merits of this claim because they failed to show that Verizon had a specific
intent to interfere with their rights under the Plan and ERISA, or to rebut Verizon’s proffered
legitimate, nondiscriminatory reason for defining the group of retirees for the annuity
contract as it did. See Lee I, 2012 WL 6089041, at *5-6. The amended complaint alleges
that Verizon had the specific intent to discriminate against the Transferee Class and expel
them from the Plan in order to interfere with their rights under the terms of the Plan and
ERISA. The only right the Transferee Class asserts, however, is a right to continued
- 14 -

participation in the Plan, which it maintains lasts until the members’ vested pension benefits
are paid in full. The Transferee Class alleges that Verizon was motivated by a desire to
deprive the class members of the right to continued participation. The Transferee Class also
asserts that Verizon had no legitimate business justification for removing the class members
from the Plan, but giving preferential treatment to other groups of retirees who were allowed
to remain.
Because a § 510 claim addresses discrimination for the purpose of interfering with the
attainment of a right, the court addresses whether the members of the Transferee Class had
a right to continued participation in the Plan. In support of this asserted right, the Transferee
Class relies on a clause in the SPD that states:
When participation ends
You are a plan participant as long as you have a vested benefit
in the plan that has not been paid to you in full.
Ps. App. 19 (bold font omitted). As the court noted in Lee I,
the SPD’s description of being a plan participant until “vested
benefits in the plan” are paid in full does not prevent an
amendment that removes a beneficiary from the plan in
compliance with ERISA and the plan’s provisions. This SPD
language instead simply means that while beneficiaries are in
the plan, they are participants until their benefits are paid in full.
Plaintiffs’ reading would conflict with ERISA regulations that
state: “An individual is not a participant covered under an
employee pension plan” if, for example, the entire benefit rights
are fully guaranteed by an insurance company. 29 C.F.R.
§ 2510.3-3(d)(2)(ii) (2012).
Lee I, 2012 WL 6089041, at *6 n.13. The Transferee Class offers no additional authority
supporting a right to continued participation in the Plan. Because the Transferee Class has
- 15 -

failed to allege a viable right with which Verizon interfered, it has failed to state a claim on
which relief can be granted.12
VI
The court now turns to Verizon’s Rule 12(b)(1) and (b)(6) motions to dismiss the
Non-Transferee Class’s claim via ERISA § 502(a)(2), for relief under ERISA § 409(a),
alleging that Verizon breached its fiduciary duty by depleting the Plan’s assets.
A
Section 409(a) imposes personal liability on fiduciaries to restore any loss to a plan
resulting from a breach of “any of the responsibilities, obligations, or duties imposed upon
fiduciaries by this subchapter.” The Non-Transferee Class alleges that Verizon breached its
fiduciary duties and depleted the Plan’s assets by paying an excessive and unreasonable
amount of expenses to complete the annuity transaction. They also allege that Verizon
executed the annuity transaction when the Plan was less than 80% funded, in violation of
ERISA § 206 and Internal Revenue Code § 436, which purportedly required the Plan to fund

12

Because the court is dismissing the Transferee Class’s claim on other grounds, it
need not decide a question that the Fifth Circuit has not yet resolved: whether “the scope of
§ 510 is limited to acts that affect the employer-employee relationship; in other words,
[whether] plan amendments by themselves cannot be actionable under § 510.” Hines v.
Mass. Mut. Life Ins. Co., 43 F.3d 207, 210 n.5 (5th Cir. 1995). The court also need not reach
whether § 510 claims are limited to interference with the attainment of a right, as opposed
to interference with an existing, vested right. See generally Inter-Modal Rail Emps. Ass’n
v. Atchison, Topeka & Santa Fe Ry. Co., 520 U.S. 510, 516-17 (1997) (recognizing issue but
reserving decision because not properly presented); see also 29 U.S.C. § 1140 (making it
unlawful to discriminate “for the purpose of interfering with the attainment of any right to
which such participant may become entitled” (emphasis added)).
- 16 -

the entire payment to Prudential. Verizon maintains that the Non-Transferee Class lacks
constitutional standing to assert a fiduciary duty claim because it has failed to allege an injury
in fact. Verizon posits that, in this context, alleging loss to Plan assets is insufficient because
the purported misconduct must affect the payment of pension benefits. The Non-Transferee
Class responds that it has standing because it alleges that the mismanagement of assets
caused losses to the Plan and abridged the class members’ statutory right to proper
management of Plan assets.
B
Standing is an issue of subject matter jurisdiction, and thus can be contested by a Rule
12(b)(1) motion to dismiss. See Hunter v. Branch Banking & Trust Co., 2013 WL 607151,
at *1 (N.D. Tex. Feb. 19, 2013) (Fitzwater, C.J.) (citing Cobb v. Cent. States, 461 F.3d 632,
635 (5th Cir. 2006)). A Rule 12(b)(1) motion can mount either a facial or factual challenge.
See id. at *2 (citing Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. May 1981)). When
a party makes a Rule 12(b)(1) motion without including evidence, the challenge to subject
matter jurisdiction is facial. Id. The court assesses a facial challenge as it does a Rule
12(b)(6) motion in that it “looks only at the sufficiency of the allegations in the pleading and
assumes them to be true. If the allegations are sufficient to allege jurisdiction, the court must
deny the motion.” Id. at *2 (internal citation omitted) (citing Paterson, 644 F.2d at 523). If,
however, a party mounts a factual attack on subject matter jurisdiction by submitting
evidence, such as affidavits or testimony,

- 17 -

the court is free to weigh the evidence and satisfy itself as to the
existence of its power to hear the case. No presumptive
truthfulness attaches to plaintiff’s allegations, and the existence
of disputed material facts will not preclude the trial court from
evaluating for itself the merits of jurisdictional claims.
Id. (quoting Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. May 1981)) (internal
quotation marks omitted). The plaintiff in a factual challenge, as the party seeking to invoke
jurisdiction, must prove subject matter jurisdiction by a preponderance of the evidence. Id.
(citing Paterson, 644 F.2d at 523). While normally a court can decide a factual challenge
at the preliminary stage of a Rule 12(b)(1) motion, if the factual findings regarding subject
matter jurisdiction are intertwined with the merits of a claim, the court must “assume
jurisdiction and decide the case on the merits.” Worldwide Parking, Inc. v. New Orleans
City, 123 Fed. Appx. 606, 609 (5th Cir. 2005) (citing Bell v. Hood, 327 U.S. 678, 682
(1946)); Clark v. Tarrant Cnty., Tex., 798 F.2d 736, 741-42 (5th Cir. 1986). In that situation,
the defendant can proceed either by moving to dismiss under Rule 12(b)(6) or by moving for
summary judgment. See Worldwide Parking, 123 Fed. Appx. at 609 & n.4 (citing
Williamson, 645 F.2d at 415-16). This rule provides protection to plaintiffs so that factual
disputes affecting the merits of claims can be addressed in accordance with the Federal Rules
and the Seventh Amendment right to a jury trial.
Verizon challenges subject matter jurisdiction on the ground that the Non-Transferee
Class lacks constitutional standing. Standing is an “irreducible constitutional minimum”
under Article III’s case-or-controversy requirement, Lujan v. Defenders of Wildlife, 504 U.S.
555, 560 (1992), and it requires an injury that is “concrete, particularized, and actual or
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imminent; fairly traceable to the challenged action; and redressable by a favorable ruling.”
Clapper v. Amnesty Int’l USA, ___ U.S. ___, 133 S. Ct. 1138, 1147 (2013) (citation omitted).
“[T]he injury must affect the plaintiff in a personal and individual way.” Lujan, 504 U.S. at
560 n.1.
C
As a threshold matter, the parties dispute what constitutes an injury in fact. The NonTransferee Class maintains that it need only allege injury to the Plan to satisfy standing, and
it posits that ERISA creates a legal right to a properly-managed plan and a corresponding
cognizable injury for breach of a fiduciary’s management duties. Verizon contends that the
Non-Transferee Class must allege that the breach of fiduciary duty injured its members
personally by affecting their pension payments.
1
Courts have consistently held that a loss that merely affects plan assets is insufficient
to confer standing under § 409. See David v. Alphin, 704 F.3d 327, 338 (4th Cir. 2013);
Harley v. Minn. Mining & Mfg. Co., 284 F.3d 901, 906 (8th Cir. 2002); Glanton ex rel.
ALCOA Prescription Drug Plan v. AdvancePCS Inc., 465 F.3d 1123, 1126-27 (9th Cir.
2006); Perelman v. Perelman, ___ F.Supp.2d ___, 2013 WL 271817, at *4-5 (E.D. Pa. Jan.
24, 2013); see also Loren v. Blue Cross & Blue Shield of Mich., 505 F.3d 598, 608-09 (6th
Cir. 2007) (applying rule in context of welfare benefit plan). For defined benefit plans such
as the Plan, a decrease in the value of plan assets does not necessarily result in an injury in
fact because the benefit amount is fixed regardless of the value of assets in the Plan. “[T]he
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employer typically bears the entire investment risk and—short of the consequences of plan
termination—must cover any underfunding as the result of a shortfall that may occur from
the plan’s investments.” Hughes Aircraft, 525 U.S. at 439. Therefore, a decrease in the
amount of plan assets “will not affect an individual’s entitlement to a defined benefit unless
it creates or enhances the risk of default by the entire plan.” LaRue v. DeWolff, Boberg &
Assocs., Inc., 552 U.S. 248, 255 (2008). LaRue distinguished defined contribution plans
from defined benefit plans, reasoning that, in defined contribution plans, “fiduciary
misconduct need not threaten the solvency of the entire plan to reduce benefits below the
amount that participants would otherwise receive.” Id. at 255-56. For defined benefit plans,
however, it takes more than a plan’s becoming underfunded to affect benefits payments. If
the fiduciary’s conduct results in the plan’s becoming underfunded, the plan sponsor is
required to make additional contributions. See David, 704 F.3d at 338; see also 26 U.S.C.
§ 412(a)(2)(A) (describing employer contributions necessary to reach minimum funding
standard). And then, even if the plan sponsor is unable to contribute and the plan becomes
unable to pay benefits, participants’ vested benefits are guaranteed by the PBGC up to a
statutory level. See David, 704 F.3d at 338; see also 29 U.S.C. § 1322 (describing PBGC’s
guarantee of benefits payments). Accordingly, for the Non-Transferee Class to establish a
particularized, concrete, and actual or imminent injury, it must show more than the mere loss
of Plan assets. It must show an effect on its members’ benefits payments. See Perelman,
2013 WL 271817, at *4 (holding that “plan participants cannot establish standing to seek
money damages where the plan has substantial surplus assets or the plan sponsor is
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financially capable of making up any losses suffered by the plan” (citing Harley, 284 F.3d
at 906)).
The Non-Transferee Class alleges that Verizon caused losses to the Plan by violating
the restriction on accelerated benefit distributions when a plan is less than 80% funded,
which purportedly caused the Plan to fund the entire $8.4 billion payment to Prudential, and
by using Plan assets to pay the $1 billion in expenses for the annuity transaction, in violation
of the exclusive benefit rule. The Non-Transferee Class also asserts that Verizon left the
Plan in a less stable financial condition, in violation of its fiduciary duties concerning
investing Plan assets. It avers that this conduct harms the Plan, leaves it underfunded and
insufficient to support all of the expected payments to the Non-Transferee Class, and thus
jeopardizes the financial security of the pension benefits of the class members.
The parties dispute whether the Plan was in fact underfunded and whether Verizon
violated the Internal Revenue Code or the exclusive benefit rule in entering into the annuity
transaction. The court need not address these arguments or the supporting evidence. This
is because, assuming arguendo that these alleged violations breached Verizon’s fiduciary
duties and caused loss to the Plan, the Non-Transferee Class has failed to allege that its
members have not received the plan benefits to which they are entitled, or, for example, that
Verizon as plan sponsor cannot make the necessary contributions to the Plan so that
reductions are avoided. Because the Non-Transferee Class has failed to allege such facts, the
amended complaint is insufficient to establish the injury in fact necessary for Article III

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standing. See Perelman, 2013 WL 271817, at *5.13
2
The court next addresses the Non-Transferee Class’s assertion that it has standing
through the invasion of a statutorily-created right.

It maintains that ERISA grants

participants a legal right to have plan assets managed solely in their interest, and that breach
of that fiduciary duty constitutes an injury in fact. The court disagrees.
The Non-Transferee Class relies on the principle that “the injury required by Art. III
may exist solely by virtue of statutes creating legal rights, the invasion of which creates
standing.” Lujan, 504 U.S. at 578 (alterations, citation, and internal quotation marks
removed). As Lujan explained, this principle is generally applied to a de facto injury that
was inadequate in law before a statute made it legally cognizable. See id. (noting examples
such as injury to individual’s personal interest in living in racially-integrated community).
The Non-Transferee Class does not rest its purported statutorily-grounded injury on a de
facto injury of any kind; it maintains that breach of fiduciary duty in itself is an injury in fact.
This argument fails because “it conflates statutory standing with constitutional standing.”
David, 704 F.3d at 338 (rejecting assertion that alleged deprivation of statutory right to have

13

Perelman addressed similar allegations and held that they were insufficient to
establish standing. Perelman, 2013 WL 271817, at *5. The plan participants alleged that
diminution of plan assets jeopardized the plan’s ability to provide pension benefits, and that
the funding level had dropped below 100%. See id. Although in Perelman there was no
allegation that the losses put the plan in “at-risk status” under the statute, which is contested
here, the court concluded that it was more important that the complaint did not allege that the
plan sponsor “is financially compromised and thus unable to adequately fund the Plan so that
it may meet its future obligations to pay all vested benefits.” Id.
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plan operated in accordance with ERISA’s fiduciary requirements constituted injury in fact
necessary for constitutional standing). The Non-Transferee Class fails to cite any authority
holding that there is constitutional standing for plan participants to sue under ERISA § 409
for a breach of fiduciary duty that causes them no harm.14 Cf. Lujan, 504 U.S. at 578 (noting
that while statutes may broaden categories of injury that can be alleged in support of
standing, that is different than holding that Congress may abandon requirement that plaintiffs
must themselves have suffered an injury). The court therefore holds that the Non-Transferee
Class lacks constitutional standing to seek relief under § 409 on this basis, and it dismisses
the action of the Non-Transferee Class.
VII
Although the court is granting Verizon’s motions, it will grant the Transferee Class
and the Non-Transferee Class leave to replead. “[D]istrict courts often afford plaintiffs at
least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear
that the defects are incurable or the plaintiffs advise the court that they are unwilling or
unable to amend in a manner that will avoid dismissal.” In re Am. Airlines, Inc., Privacy
Litig., 370 F.Supp.2d 552, 567-68 (N.D. Tex. 2005) (Fitzwater, J.) (quoting Great Plains

14

The Non-Transferee Class does cite cases regarding the per se ERISA violations
listed in § 406, 29 U.S.C. § 1106. But these cases do not stand for the proposition that
participants can sue for § 409 relief without showing particularized injury to themselves.
Courts addressing § 406 claims still assess whether plaintiffs have constitutional standing.
See, e.g., Faber v. Metro. Life Ins. Co., 648 F.3d 98, 102-03 (2d Cir. 2011) (holding that plan
beneficiaries had constitutional standing to bring § 406 claim for injunctive relief, although
not for disgorgement or restitution (which require particularized injury), where beneficiaries
could not show individual harm because they received entire amount of promised benefits).
- 23 -

Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002)). The
Transferee Class and the Non-Transferee Class have not stated that they cannot, or are
unwilling to, cure the defects that the court has identified. The court will therefore grant
them 30 days from the date this memorandum opinion and order is filed to file a second
amended complaint. If they replead, Verizon may move anew to dismiss, if it has a basis to
do so.
*

*

*

Accordingly, defendants’ motion to dismiss is granted, and the Transferee Class and
the Non-Transferee Class are granted leave to replead.
SO ORDERED.
June 24, 2013.

_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE

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