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Retirement Committee of Dak Americas LLC v. Brewer

United States Court of Appeals, Fourth Circuit

August 14, 2017

RETIREMENT COMMITTEE OF DAK AMERICAS LLC, as Plan Administrator of the DAK Americas LLC Pension Plan; TRANSAMERICA RETIREMENT SOLUTIONS CORPORATION, Plaintiffs-Appellees,
v.
MARK STEPHEN BREWER; WARREN ALBERT GARRISON; JAMES F HOLLAND; SIDNEY HUGH RHODES, Defendants-Appellants, and MENDELL W. SMITH; OTELLA IRENE WEBB; JEROME BRYANT; JOSEPH ALEXANDER BELLAMY; KELVIN L. GALLOWAY; DAVID W. ALLEN; MICHAEL LYNN BASS; HAROLD E. CORBETT; WILLIAM LACEY NELSON; JIMMIE RAY SELLERS; RODNEY B. SMITH, Defendants. RETIREMENT COMMITTEE OF DAK AMERICAS LLC, as Plan Administrator of the DAK Americas LLC Pension Plan; TRANSAMERICA RETIREMENT SOLUTIONS CORPORATION, Plaintiffs-Appellees,
v.
RODNEY B. SMITH, Defendant-Appellant, and MARK STEPHEN BREWER; WARREN ALBERT GARRISON; HAROLD E. CORBETT; JAMES F. HOLLAND; WILLIAM LACEY NELSON; SIDNEY HUGH RHODES; JIMMIE RAY SELLERS; MENDELL W. SMITH; OTELLA IRENE WEBB; JEROME BRYANT; JOSEPH ALEXANDER BELLAMY; KELVIN L. GALLOWAY; DAVID W. ALLEN; MICHAEL LYNN BASS, Defendants.

          Argued: May 10, 2017

         Appeal from the United States District Court for the Eastern District of North Carolina, at Wilmington. Louise W. Flanagan, District Judge. (7:14-cv-00036-FL)

         ARGUED:

          Thomas S. Babel, WARD & SMITH, PA, Wilmington, North Carolina; William Cory Reiss, SHIPMAN & WRIGHT, LLP, Wilmington, North Carolina, for Appellants.

          William J. Delany, MORGAN, LEWIS & BOCKIUS, LLP, Washington, D.C., for Appellees.

         ON BRIEF:

          Jeremy M. Wilson, Wilmington, North Carolina, Michael L. Miller, WARD & SMITH, PA, Raleigh, North Carolina, for Appellants

          Brewer, Garrison, Holland, and Rhodes. Marianne Hogan, MORGAN, LEWIS & BOCKIUS, LLP, Washington, D.C., for Appellees.

          Before MOTZ, AGEE, and DIAZ, Circuit Judges.

          AGEE, Circuit Judge:

         The complaint in this case, brought under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., relates to the DAK Americas LLC Pension Plan (the "Plan"), a defined benefit pension plan established by DAK Americas LLC ("DAK") and administered by the Retirement Committee of DAK Americas LLC (the "Committee") with administrative support services provided by Transamerica Retirement Solutions Corporation ("Transamerica, " collectively with the Committee, the "Plaintiffs"). The Plaintiffs initiated this lawsuit to recover alleged overpayments of retirement benefits to certain employees of DAK who were participants in the Plan, including Mark Stephen Brewer, Warren Albert Garrison, James F. Holland, Sidney Hugh Rhodes, and Rodney B. Smith (collectively, the "Defendants").[1] The Defendants filed counterclaims asserting they were entitled to retain the disputed funds. On the parties' cross-motions for summary judgment, the district court awarded summary judgment to the Plaintiffs and concluded there was an overpayment of funds which must be returned to the Plan. The Defendants' cross-motions for summary judgment were denied. For the reasons that follow, we affirm in part and vacate in part the judgment of the district court, and remand for certain further proceedings only as to Rodney B. Smith ("Smith").

          I.

         A.

         ERISA contemplates two basic types of pension plans: defined contribution plans and defined benefit plans. This case involves a defined benefit plan, in which the retirement benefit is calculated as a certain annual amount that the plan pays during the employee's lifetime, beginning at the employee's retirement. See ERISA § 3(35), 29 U.S.C. § 1002(35). Most defined benefit pension plans offer normal retirement annuity benefits based on a normal retirement age of 65, permitting a participant to retire at that age and receive an unreduced accrued benefit that is calculated based on the terms of the plan. Treas. Reg.. § 1.417(e)-1; see also, e.g., Lyons v. Georgia-Pac. Corp. Salaried Emps. Retirement Plan, 221 F.3d 1235, 1252 (11th Cir. 2000) ("The 'normal retirement benefit' . . . is the amount a participant would have received at age 65 under the Plan . . . ."). Many employers also offer plans, like the Plan in this case, that provide early retirement annuity benefits. See Barbara J. Coleman, Primer on Employee Retirement Income Security Act 32-33 (4th ed. 1993).

         In addition to the traditional monthly annuity benefits, employers may offer participants the option to elect a lump sum. Under ERISA and the Internal Revenue Code, employers that offer defined benefit pension plans providing early retirement annuity benefits maintain latitude in determining what kind of optional lump sum benefit they may choose to provide. See Treas. Reg. § 1.411(a)-11. In industry argot, lump sum benefits may be "subsidized" or "unsubsidized." An "unsubsidized" lump sum benefit is based on a participant's normal retirement date. See Treas. Reg. § 1.411(d)-4. By contrast, a "subsidized" lump sum is calculated using a participant's early retirement date. Id.

         B.

         DAK announced plans to close its Cape Fear, North Carolina, plant in June 2013. The following month, DAK voted to amend the Plan by adding a new benefit option: an unsubsidized lump sum early retirement benefit available to certain of the Plan participants who were separating from service with DAK due to the plant closure. The lump sum would be available in addition to other payment options under the Plan. To implement this additional benefit option, Plan Amendment Number One (the "Amendment") was adopted, which provides, in part:

4.15. Special Immediate Payment for Certain Participants: Each Participant in the group of Participants at the Employer's Cape Fear site who is severed from service with the Employer as a result of closing the Employer's plant at the Cape Fear site on or about September 1, 2013 (a "Cape Fear Participant") shall, subject to the spouse consent requirements of Section 4.10(c)(2), have the option to elect to receive an immediate lump sum distribution within 60 days following such severance from service. Such lump sum shall be Actuarially Equivalent to the Cape Fear Participant's Accrued Benefit and shall not be available if the Cape Fear Participant does not elect it within such time period. Any such Cape Fear Participant who has not yet reached his Early Retirement Age also shall have the option to receive an actuarially equivalent . . . immediate annuity payable in the form of a Qualified Joint and Survivor Annuity or a Joint and Survivor Annuity . . . .

J.A. 54 (emphasis added). In voting to adopt the Amendment, the only item considered was a calculation offering a one-time unsubsidized lump sum based on a participant's Accrued Benefit at Normal Retirement Date.

          Unless otherwise specifically stated in the Amendment, the terms defined in the Plan govern the Amendment. See United McGill Corp. v. Stinnett, 154 F.3d 168, 173 (4th Cir. 1998) ("[W]e are bound to enforce the contractual provisions as drafted."). For instance, the Plan defines "Accrued Benefit" as "[t]hat portion, at any given date, of a Participant's Normal Retirement Benefit that has accrued at such date."[2] J.A. 63 (emphasis added). And a participant's "Normal Retirement Benefit" is "[t]he benefit payable at the Normal Retirement Date, as described in Section 4.1." J.A. 77. In turn, Section 4.1 describes the Normal Retirement Benefit available under the Plan, including who is eligible for the Normal Retirement Benefit, how that benefit is calculated, and the form in which it is to be paid (a monthly life annuity). A Plan participant's Normal Retirement Date corresponds with "[t]he first day of the month coinciding with or next following a Participant's Normal Retirement Age." J.A. 77.

         The Plan also offers an Early Retirement Benefit option, described in Section 4.3 of the Plan as "payable at a participant's Early Retirement Date." J.A. 68. "Early Retirement Date" is defined as "[t]he first day of any calendar month after a Participant's Early Retirement Age and before his Normal Retirement Age on which the Participant elects to begin receiving Early Retirement Benefits." J.A. 68. Participants who meet certain age and years of service requirements may elect an Early Retirement Benefit (in lieu of waiting for the Normal Retirement Benefit) in the form of a monthly annuity "reduced based on the Participant's age when benefits begin and Years of Service" under the Plan. J.A. 94.

         On September 30, 2013, the Plaintiffs sent a letter ("September 30 Letter") to eligible Plan participants informing them of the Amendment's lump sum benefit option in addition to the existing Early Retirement and Normal Retirement annuities. That letter summarized the lump sum amount available under the Amendment, but the amount stated was incorrectly calculated. Transamerica had calculated the lump sum payment based on the actuarial equivalent at the Early Retirement Date for the Plan participants, not the Normal Retirement Date. Acting on this information in the September 30 letter, some plan participants made an election to receive the lump sum in lieu of either the Early Retirement or Normal Retirement annuities. Due to the calculation error, the Defendants received more generous lump sum payments than those to which they were entitled.

         The Defendants were notified of the error two months after the initial, incorrect lump sum calculations and less than a month and a half after receiving the incorrect lump sum distributions. In a letter dated December 5, 2013 (the "December 5 Letter"), the Plaintiffs notified the Defendants there had been a calculation error and provided the correct amount for the lump sum that should have been paid under the Amendment. The December 5 Letter also included a revised election package so that Plan participants could elect the correct alternative lump sum benefit option if they did not wish to receive payments under the Plan's annuity provisions. In addition, the December 5 Letter informed Defendants that failure to promptly return the overpayment amount to the Plan could result in "significant negative tax consequences" and described those potential tax liabilities. J.A. 188.

         The Defendants were again advised of their individual corrected lump sum benefit amounts and given a second election opportunity in a letter dated December 16, 2013 (the "December 16 Letter"). This letter provided a 60-day window to make anew their retirement benefits election. Attached to that letter was a Calculation Worksheet that explained in detail the two lump sum calculations and the reason for the erroneous initial calculation.

         Collectively, the Defendants received lump sums totaling $2.6 million, which included $928, 000 in alleged overpayments. Most of the Plan participants affected by the lump sum calculation error either returned the entire lump sum payment and elected an annuity option benefit during the second 60-day election window or simply returned the amount of the stated overpayment. Although each of the Defendants had the second election opportunity while possessing the correct information regarding the lump sum amount and the adverse tax consequences of failing to return the funds promptly, the Defendants did not remit the disputed funds or make an alternate election.

         C.

          In view of the Defendants' failure to timely remit the disputed payments, the Plaintiffs filed suit in the United States District Court for the Eastern District of North Carolina, asserting an equitable restitution claim under ERISA's civil enforcement provision, 29 U.S.C. § 1132(a)(3). The Defendants asserted counterclaims for breach of fiduciary duty and constructive fraud, seeking surcharge as a remedy. They also asserted an equitable estoppel defense. In particular, the Plaintiffs sought an order requiring the Defendants to return the claimed pension benefit overpayments. The district court entered a preliminary injunction on March 24, 2014, pending final resolution of the ...


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