JOHN MARTIN, Individually v.  American Bancorporation Retirment Plan

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 JOHN MARTIN, Individually and on
behalf of a Class of Plan
Participants as set forth herein; JOHN
SAMUELS, Individually and on behalf
of a Class of Plan Participants as
set forth herein; WILLIAM SHOAF,
Individually and on behalf of a
Class of Plan Participants as set
forth herein,
Plaintiffs-Appellants,
v. No. 04-1559 
AMERICAN BANCORPORATION
RETIRMENT PLAN; AMERICAN
BANCORPORATION, an Ohio
corporation; BRENT E. RICHMOND, as
a fiduciary of the Plan,
Defendants-Appellees,
and
WESBANCO, INCORPORATED, a West
Virginia banking corporation,
Defendant. 
Appeal from the United States District Court
for the Northern District of West Virginia, at Wheeling.
W. Craig Broadwater, District Judge.
(CA-00-168)
Argued: February 1, 2005
Decided: May 11, 2005
Before WIDENER, MOTZ, and GREGORY, Circuit Judges.

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Reversed and remanded by published opinion. Judge Gregory wrote
the opinion, in which Judge Widener and Judge Motz joined.
COUNSEL
ARGUED: Patrick Stanley Cassidy, CASSIDY, MYERS, COGAN,
VOEGELIN & TENNANT, L.C., Wheeling, West Virginia, for
Appellants. John Porco, SCHRADER, BYRD & COMPANION,
P.L.L.C., Wheeling, West Virginia; Cynthia B. Jones, STEPTOE &
JOHNSON, Morgantown, West Virginia, for Appellees. ON BRIEF:
Thomas M. Cunningham, CASSIDY, MYERS, COGAN, VOE-
GELIN & TENNANT, L.C., Wheeling, West Virginia, for Appel-
lants. Sara E. Hauptfuehrer, STEPTOE & JOHNSON, Morgantown,
West Virginia, for Appellee American Bancorporation; Ray A. Byrd,
SCHRADER, BYRD & COMPANION, P.L.L.C., Wheeling, West
Virginia, for Appellees American Bancorporation Retirement Plan
and Brent E. Richmond.
OPINION
GREGORY, Circuit Judge:
John Martin, John Samuels, and William Shoaf (collectively "Ap-
pellants"), retirees from Wheeling National Bank, both individually
and on behalf of a class of retirement plan participants, brought this
action under the Employee Retirement Income Security Act
("ERISA") § 502(a), 29 U.S.C. § 1132(a) (2000), claiming additional
pension benefits attributable to employee contributions they made to
the American Bancorporation Pension Plan prior to 1986. Four years
after the suit was commenced, the parties each moved for summary
judgment. The district court denied Appellants’ motion for summary
judgment "due to the preclusive effects of res judicata and [its] find-
ing that the Plan Administrator correctly calculated the benefits of all
named plan participants." J.A. 620. However, the district court
granted American Bancorporation Retirement Plan’s ("American
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Bancorporation") motion for summary judgment because of its find-
ing that the Plan Administrator had correctly calculated the benefits
of all named plan participants. Id.
Because we find that Appellants’ claims were not barred by res
judicata, we reverse the district court’s grant of summary judgment
for American Bancorporation and remand for further proceedings
consistent with this opinion.
I.
A. The Retirement Plan.
Established in 1965, the AETNA retirement plan ("AETNA plan"),
predecessor to the American Bancorporation Retirement Plan chal-
lenged in this case, was a "contributory defined benefit plan," mean-
ing that it provided pension benefits as defined by a formula set forth
in the retirement plan. The AETNA plan also contained an employee
contribution provision, which mandated that participants contribute
toward funding their benefits, with the balance of the funding and the
risk of investment losses falling on the employer. Under this type of
plan participants have a right to a certain level of accrued benefits, but
no right to the assets of the plan.
In March and December of 1986, the AETNA Plan underwent a
series of important amendments. These amendments involved the
adoption of a plan developed by State Mutual Life Insurance Com-
pany, and created the incarnation of the retirement plan currently
before this court ("the Plan"). First, this series of amendments elimi-
nated the employee contribution provision of the AETNA Plan. Addi-
tionally, the March 1986 amendments1 altered the retirement
compensation scheme such that employees received a flat percentage
pension equal to 32% of their average salary for the last five years of
their employment. However, and critical to the issues in this case,
both company documents and executive statements belie a flat 32%
compensation program. A summary plan description ("SPD") entitled
1The exact text of this amendment appears nowhere in the record, but
it appears to be undisputed that the text of the amendment did not refer
to the return of any contribution.
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"Your Retirement Plan," dated August 1986, described the benefits as
20% of a participant’s monthly earnings plus an amount equal to the
amount of contributions made by any participants who were active in
the plan before a specific date ("20+"). J.A. 321. A similar interpreta-
tion was expressed when an executive committee of the Board of
Directors of Wheeling National Bank met to discuss the retirement
plan. At that meeting, as described by the district court, the committee
noted:
that the original proposal called for a non-contributory plan
with a retirement benefit of 32% of base salary. However,
the Committee further noted that what had been installed
was a non-contributory plan which would provide a benefit
of 20% of annual salary. The Committee explained that
employees who were participants in the Aetna plan would
receive 20% plus their contributions to the Aetna plan with
accrued interest. The combined benefits to participants of
the Aetna plan would be approximately 32% of the annual
salary at retirement date for those employees.
Id. at 797-98.
The AETNA Plan was further amended in December of 1986.
Under these amendments, employees received a flat percentage pen-
sion equal to 20% of their average salary for the last five years of
their employment.2 The American Bancorporation Retirement Plan3
was further amended in 1992, such that all benefit accruals ended on
December 31, 1992.
B. McKain Suit.
William D. McKain ("McKain") retired from Wheeling National
Bank on March 31, 1989.4 At the time of his retirement, McKain had
2An SPD distributed in June of 1987 described the benefits as 20% of
monthly earnings, and importantly made no mention of the return of any
contribution.
3In 1989, the Plan was further amended, becoming the American Ban-
corporation Retirement Plan.
4At the time of his retirement, Appellants aver that McKain was a
"highly compensated employee" for IRS purposes. Though not pertinent
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acquired over 23 years of service for American Bancorporation. Id.
at 798. In April of 1992, McKain applied for the distribution of his
pension benefits and received a check in the amount of $138,904.90.
American Bancorporation used the 20% benefit calculation to arrive
at this figure. Upon receipt of this check, McKain filed a claim for
additional benefits under the Plan, maintaining that he was entitled to
a 32% benefit or a 20+ benefit with interest. The Plan Administrator
rejected this challenge. McKain’s subsequent appeal of that decision
was also denied. When McKain then expressed his intent to file suit
on the matter,5 American Bancorporation filed a declaratory judgment
action to resolve the proper earnings formula to determine McKain’s
pension benefits.
In that declaratory judgment action McKain moved for summary
judgment contending that the resolutions adopted in March of 1986
by the Board of Directors of Wheeling National Bank constituted an
amendment to the retirement plan. McKain argued that this amend-
ment established a benefit equal to 32% of compensation. American
Bancorporation countered that the 32% benefit plan was never imple-
mented as clarified during the earlier referenced meeting of an execu-
tive committee of the Board of Directors of Wheeling National Bank,
and that McKain was estopped from relying upon the 32% benefit
because the SPD stated that the benefit was 20%. The district court
granted McKain’s motion for summary judgment, finding that the
AETNA plan was properly amended in March of 1986 to provide
benefits of 32%, and again in December of 1986 to provide 20% bene-
fits.6 Id. at 803-04. Ultimately, the district court ruled that McKain
had a vested benefit equal to 32% of his compensation. Id. at 805.
to our issues, Appellants argue that American Bancorporation’s calcula-
tion of McKain’s benefits violated IRS provisions by discriminating
against lower level employees in favor of highly compensated employ-
ees.
5Ultimately, Appellants helped to finance this suit. Affidavits show
that they personally contributed money to allow McKain’s suit to pro-
ceed. For example, Appellant John Samuels contributed $1,600 to
McKain’s fund. These contributions were made in the hopes that if Mc-
Kain won his case, other employees would benefit. J.A. 89.
6Importantly, the district court noted that the SPD and executive com-
mittee statements did not amount to a formal written amendment to the
Plan. J.A. 803-04.
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Thereafter, the parties settled upon a calculation method and the
exact amount of McKain’s benefits. In its order approving of the set-
tlement between the parties, the district court described the Plan as
calling for "the benefit to be a percentage of W-2 earnings averaged
over five consecutive years of plan participation, which will give the
participant the highest benefit possible." Id. at 881. Brent Richmond
("Richmond"), the Plan Administrator, employing the calculation
approved by the district court, determined McKain’s benefit under the
settlement by calculating the "benefit under two separate formulae:
one of which was based on 32 percent of compensation; and a second
formula, which was based on a 20 percent of compensation."7 Id. at
513. Applying these formulae to McKain’s earnings, Richmond deter-
mined that the first calculation (32%) produced a higher benefit.
Therefore, McKain received a 32% benefit.
To reach the actual amount of McKain’s benefit, the analysis
becomes more complex.8 The Plan’s basic retirement benefit is gener-
ally stated as an amount payable if the participant remains in covered
employment until his normal retirement date ("NRD"), generally age
65. Those who terminated employment before age 65 received less
than full benefits. The Plan calculated this benefit reduction through
a mathematical factor known as an Accrued Benefit Adjustment
("ABA factor"). The ABA factor is a ratio in which the numerator
represents the participant’s actual years of service, and the denomina-
tor represents projected service through the NRD. The ratio is "bal-
anced" where the same start date is used to calculate both the
numerator and denominator, "unbalanced" where it is not. Under a
balanced ratio, any time a person retires before their NRD the ABA
7In detail, McKain’s compensation between 1981-85 (in order to apply
a 32% compensation) was compared to McKain’s compensation between
1984-88 (in order to encompass the amended policy under which 1984
and 1985 had 32% benefits and the other three years had 20% benefits).
Id. at 882. The reason for this was because the 32% benefits ended with
the December 1986 amendment. It should be noted here that it is not
automatic that the 32% number would produce a higher benefit because
increased earnings after the amendment could offset the 12% loss.
8The actual amount of McKain’s benefit is irrelevant for our purposes.
However, the manner in which the benefit was calculated is an important
element of this suit. Therefore, we recount it here.
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factor would be less than 1.0, resulting in less than full benefits after
the participant’s benefit is multiplied by that factor.
Appellants contend that McKain’s benefit was calculated incor-
rectly, using an ABA factor of "1" (the equivalent of having a fully
accrued benefit), despite the fact that McKain’s benefit was calculated
using a date that was a full five years before his NRD. Specifically,
in calculating McKain’s benefit, American Bancorporation employed
an unbalanced ratio, using his actual start date (as opposed to the date
he began participation in the pension program) for the numerator, and
the date he began participating in the pension program for the denom-
inator. The end date used to calculate the numerator (McKain’s actual
years of service) was 11/1/1986.9 Given that McKain began working
at American Bancorporation on 5/1/59, his numerator was 28.10 Mc-
Kain’s projected NRD was 11/1/91. Therefore, because McKain
began participating in the program on 11/1/65, his denominator
(McKain’s projected service through his NRD) was 26. This unbal-
anced ratio produced an ABA factor of 1.0, entitling McKain to full
benefits.11
According to Appellants, this calculation granted McKain a larger
benefit than that to which he was entitled. In fact, American Bancor-
poration’s own expert, Michael Pisula, testified that given McKain’s
raw data, and the parameters of the Plan, the only way to achieve an
ABA factor of "1" for McKain was to simply make it up or to use an
"unbalanced ABA." Id. at 578-79. Importantly, he further testified
9This date was used because of the Plan amendments in December of
1986, which changed the benefit percentage to 20%. Thus, November of
1986 was the last month of the 32% plan.
10American Bancorporation argues that the use of the 1959 date gave
credit to McKain for his years of service prior to the enactment of the
AETNA plan in 1965, which the Plan was designed to do.
11The actual figure is approximately 1.08, however the ABA factor
cannot be higher than 1.0. Under a balanced ratio, where the dates used
for calculation of both the numerator and denominator are the same
(using the date of participation for both the numerator and the denomina-
tor), McKain would achieve a ratio of 21 over 26. Under that ratio, Mc-
Kain’s ABA factor is only .8077, thereby lowering his benefits by almost
20%. Id. at 576.
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that the language of the Plan in no way supports the use of an unbal-
anced ABA. Id.
C. General Recalculations.
After the McKain settlement, American Bancorporation applied the
same calculation it used for McKain to all other plan participants.
Similar to McKain’s calculation, where an employee had years of ser-
vice prior to the inception of the AETNA plan, an unbalanced ABA
was used. Additionally, Richmond calculated benefits under both the
32% and 20% formulae, awarding employees the larger of the two,
as was done in the McKain matter.12 Finally, the numerator end date
of 11/1/1986 was used, as it was in McKain, because the 32% pro-
gram was no longer in effect in December of that year.
D. Current Action.
On September 22, 2000, Appellants brought this action (both as a
class and as a derivative action), claiming additional pension benefits
attributable to employee contributions they made to the Plan prior to
1986. Appellants’ main contention before the district court was that
employees other than McKain received benefits that were less than
those promised by the Plan because the recalculations did not pay
employees their rightful 20+ benefits as set out in the August 1986
SPD,13 and "produced arbitrary results."14 Appellants allege that
12To the extent that these recalculations resulted in a decrease in bene-
fits for any plan participants, their benefits remained at the level that
existed prior to the recalculations.
13Although we do not reach the merits of Appellants’ 20+ claim, we
will briefly describe it here. The 20+ claim is based on the August 1986
SPD, which explicitly states:
If you retire on your normal retirement date your monthly benefit
under the normal form of benefit payment for unmarried partici-
pants will be equal to 20% of your monthly earnings. In addition,
if you were an active participant before November 1, 1985, and
you contributed to the plan, you will receive an amount equal to
your contributions accumulated with Credited Interest to your
Normal Retirement Date.
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American Bancorporation employed this calculation because they
knew they would save $600,000 by paying out benefits without
repaying contributions.
Specifically, Appellants brought suit under § 502(a)(1)(B) of
ERISA, 29 U.S.C. § 1132(a)(1)(B) (2000), seeking to recover benefits
due to them under the terms of their plan, to enforce [their] rights
under the terms of the plan, or to clarify their rights to future benefits
under the terms of the plan, alleging that American Bancorporation
miscalculated McKain’s benefits and that the result of said miscalcu-
lations was that members of the class are due additional benefits. J.A.
40, 43. Appellants also sought equitable relief under § 502(a)(3) of
ERISA, 29 U.S.C. § 1132(a)(3) (2000), seeking to enjoin American
Bancorporation’s practices such as the failure to give notice required
under ERISA § 204(h), the failure to file certain documents with the
Department of Labor, the failure to provide Appellants with an ade-
quate explanation for the denial of their benefits as required by § 503
of ERISA, 29 U.S.C. § 1133 (2000), and the failure to comply with
J.A. 321. Despite the fact that this document conflicts with the official
plan documents, Appellants contend that the SPD controls and point to
this court’s decision in Aiken v. Policy Management Systems Corp., 13
F.3d 138 (4th Cir. 1993). There, we stated that:
representations in a SPD control over inconsistent provisions in
an official plan document.
In Pierce v. Security Trust Life Ins. Co., this Court recognized
that the SPD is "the statutorily established means of informing
participants of the terms of the plan and its benefits," and the
"employee’s primary source of information regarding employ-
ment benefits." We noted that the logical import of the status of
the SPD was that "if there was a conflict between the complexi-
ties of the plan’s language and the simple language of the SPD,
the latter would control."
Id. at 140 (citations omitted). Appellants ultimately argue that applica-
tion of the rule of Aiken to the facts of this case mandates that they
receive 20+ benefits.
14For example, while McKain’s 32% benefit was largely equivalent to
his 20+ benefit, Appellant Martin’s 32% benefit was less than his 20%
benefit without contributions.
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the benefit accrual requirements of § 204 of ERISA. Appellants
finally charged that American Bancorporation failed to administer the
Plan in accordance with their fiduciary duties under ERISA, and vio-
lated § 404 of ERISA, 29 U.S.C. § 1104 (2000), by administering and
interpreting the Plan in a manner contrary to its written terms.
American Bancorporation eventually moved for summary judg-
ment under Fed. R. Civ. P. 56, contending that Appellants’ claims
were effectively decided by the McKain order establishing the law
regarding the Plan and its calculations. In August of 2001, the district
court granted the motion in part. Specifically, the district court
granted the motion with respect to issues concerning the amendment
of the Plan and the use of the 32% and 20% benefit factors, finding
that collateral estoppel barred further litigation. However, the district
court denied the motion with respect to the remaining issues, in par-
ticular the calculation of benefits under the "ABA factor." After the
issuance of this order, Appellants almost immediately requested find-
ings of fact and conclusions of law.
In relevant part, the district court made the following findings of
fact: 1) the McKain order concluded that the 32% amendment was
properly adopted in March of 1986 and that the 20% amendment was
properly adopted in December of the same year; 2) the McKain order
made no reference to the ABA factor or how to determine such a fac-
tor; and 3) Appellants in this case provided some degree of financial
support to McKain in his litigation. Id. at 155-56. Importantly, the
district court concluded as a matter of law that:
The only amendments to the Plan to which collateral estop-
pel applies are the March 1986, December 1986 and January
1989 Amendments that are the subject of discussion in the
McKain case Orders entered March 7, 1995 and September
22, 1995. By stating that collateral estoppel applies as to the
"amendment" of the Plan under such Amendments, the
Court is referring to the Plan’s having satisfied its own writ-
ten terms with which compliance is required for an amend-
ment to have actually taken place, which issue was
specifically reviewed by Judge Stamp in the McKain case.
Id. at 158 (emphasis added).
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Appellants’ subsequent request for clarification of these findings of
fact and conclusions of law was denied, with the court stating "Fourth
Circuit precedence [sic], res judicata, collateral estoppel and the facts
in this matter and the McKain matter sufficiently deter the Court from
allowing the parties to re-litigate the 204(h) notice issue surrounding
the March 1986, December 1986 and January 1989 Plan Amend-
ments." Id. at 188.
Finally, both sides moved for summary judgment in January of
2003. The magistrate judge issued a report and recommendation
("R&R") on the opposing summary judgment motions. Specifically,
the R&R recommended that American Bancorporation’s motion for
summary judgment be granted because "the Plan Administrator cor-
rectly followed [the district court’s] previous orders and correctly cal-
culated the benefits of all named plan participants." Id. at 620. The
R&R also recommended that Appellants’ motion for summary judg-
ment be denied "due to the preclusive effects of res judicata and this
Court’s finding that the Plan Administrator correctly calculated the
benefits of all named plan participants." Id. On March 31, 2004, the
district court adopted the R&R on the summary judgment motions.
This ruling barred Appellants’ 20+ claims. From that decision, Appel-
lants bring this appeal.
II.
Appellants first challenge the district court’s grant of summary
judgment to American Bancorporation based on its finding that res
judicata bars Appellants’ claims. Our review of a district court’s grant
of summary judgment is de novo, applying the same legal standards
applied by the district court. Elliot v. Sara Lee Corp., 190 F.3d 601,
605 (4th Cir. 1999).
Res judicata (or claim preclusion) precludes the assertion of a
claim after a judgment on the merits in a prior suit by the parties or
their privies based on the same cause of action. Pueschel v. United
States, 369 F.3d 345, 354-55 (4th Cir. 2004). "For the doctrine of res
judicata to be applicable, there must be: (1) a final judgment on the
merits in a prior suit; (2) an identity of the cause of action in both the
earlier and the later suit; and (3) an identity of parties or their privies
in the two suits." Id. Appellants argue that the third element of res
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judicata, identity of parties or their privies, is not satisfied on the facts
of this case. Specifically, Appellants argue that the district court erred
in finding the existence of privity in this case because the district
court applied the more liberal "virtual representation" standard enun-
ciated by the Eighth Circuit in Tyus v. Schoemehl, 93 F.3d 449 (8th
Cir. 1996), as opposed to applying the more stringent "virtual repre-
sentation" standard enunciated by this Circuit in Klugh v. United
States, 818 F.2d 294, 300 (4th Cir. 1987). We agree.15
To be in privity with a party to a former litigation, the non-party
must be "so identified in interest with a party to former litigation that
he represents precisely the same legal right in respect to the subject
matter involved." Jones v. SEC, 115 F.3d 1173, 1180 (4th Cir. 1997)
(citing Nash County Bd. of Educ. v. Biltmore Co., 640 F.2d 484, 493
(4th Cir. 1981)). However, an exact definition of privity is an elusive
concept. See Nash, 640 F.2d at 493-494. As this court stated in Nash,
privity "is merely a word used to say that the relationship between the
one who is a party on the record and another is close enough to
include that other within the res judicata."16 Id. at 494. (internal quota-
tion marks omitted)
There are three generally recognized categories of non-parties who
will be considered in privity with a party to the prior action and who
will therefore be bound by a prior adjudication: (1) a non-party who
controls the original action; (2) a successor-in-interest to a prior party;
and (3) a non-party whose interests were adequately represented by
15Appellants also argued that the district court erred in denying
employee’s claims based on res judicata because: 1) the district court’s
ruling applying collateral estoppel set forth the "law of the case"; 2)
claim preclusion does not apply to declaratory judgment actions; and 3)
the "same cause of action" element of res judicata was not satisfied on
these facts. Appellants’ Brief at 15-22. Because we resolve this issue on
other grounds, we do not address these arguments.
16Wright, Miller, and Cooper recommend that the privity label either
be discarded entirely or "retained as no more than a convenient means
of expressing conclusions that are supported by independent analysis."
18A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Fed-
eral Practice and Procedure: Jurisdiction 2d § 4448 at 327 (2d ed.
2002).
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a party to the original action. See generally 18A Wright, Miller &
Cooper, Federal Practice and Procedure: Jurisdiction 2d § 4448 (2d
ed. 2002). The third category, that of adequate representation, also
known as "virtual representation," is that which is contested here. See
American Forest Resource Council v. Shea, 172 F. Supp. 2d 24, 31
(D.D.C. 2001) ("the doctrine of virtual representation, which falls
under the ‘adequately represented’ category").
In this Circuit, virtual representation has been defined narrowly. In
Klugh, we stated:
Because the doctrine of virtual representation applies princi-
ples of res judicata to nonparties to a judgment, the doctrine
must cautiously be applied in order to avoid infringing on
principles of due process. . . . The doctrine of virtual repre-
sentation does not authorize application of a bar to relitiga-
tion of a claim by a nonparty to the original judgment where
the interests of the parties to the different actions are sepa-
rate or where the parties to the first suit are not accountable
to the nonparties who file a subsequent suit. In addition, a
party acting as a virtual representative for a nonparty must
do so with at least the tacit approval of the court.
818 F.2d at 300 (citations omitted)(emphasis added).17 Defining the
"tacit approval" requirement, we cited to the Restatement (Second) of
Judgments, which states: "The essential question is whether there is
a disclosed relationship in which the party is accorded authority to
appear as a party on behalf of others." Id. (citing Restatement (Sec-
ond) of Judgments § 36(1), cmt. b (1982)).
In spite of this clear, binding precedent, the R&R, which the dis-
trict court adopted, applies the rule employed by "those courts that
permit wider use of virtual representation," and specifically cited Tyus
v. Schoemehl, 93 F.3d 449 (8th Cir. 1996). J.A. 636. However, as the
R&R correctly notes, courts are sharply divided on how to implement
virtual representation. In fact, Tyus expressly disagrees with our own
17See Bouchat v. Champion Products Inc., 327 F.Supp. 2d 537, 543 (D.
Md. 2003) (citing Klugh for virtual representation); In re Barrow, 87
B.R. 879, 891 (Bkrtcy. E.D.Va. 1988) (same).
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precedent, citing Klugh as placing our Circuit within a group of courts
who "would permit a nonparty to be bound by a prior judgment under
a theory of virtual representation only in very limited, technical situa-
tions." Tyus, 93 F.3d at 454. The Tyus Court went on to state "[w]e
agree with those courts that give wider use to virtual representation.
This liberal use better accommodates the competing considerations of
judicial economy and due process." Id. at 455. Given the existence of
binding Circuit precedent to the contrary, following Tyus was not a
viable option.
Applying our much more stringent standard to the facts of this
case, we find that identity of parties does not exist. Under our prece-
dent in Klugh, there can be no virtual representation where one of the
parties to the first suit was not accountable to the nonparties who filed
a subsequent suit and where the virtual representative for a nonparty
did not have at least the tacit approval of the court. See 818 F.2d at
300. The record discloses no point at which the district court in the
McKain suit provided "tacit approval" to McKain to represent the
other employee participants in the Plan. In fact, it discloses exactly
the opposite. Long after the district court had already granted sum-
mary judgment to McKain on the substantive issues of the case, it
denied McKain’s request for an injunction to protect the benefits of
the other plan participants. Specifically, it noted that "[t]his issue was
not addressed by the parties in the post-judgment briefs or in any brief
filed prior to the entry of judgment in this case." J.A. 874. In other
words, during the substantive portions of the case, the entire focus of
the court was on McKain as an individual participant and there was
no disclosed relationship in which McKain was accorded authority to
appear as a party on behalf of Appellants. Thus, there was no tacit
approval.
In apparent recognition that they cannot satisfy the Klugh standard,
American Bancorporation argues that Klugh conflicts with our defini-
tion of privity in Nash, and points to this court’s decision in McMel-
lon v. United States, 387 F.3d 329 (4th Cir. 2004) (en banc). In
McMellon, this court concluded "that when there is an irreconcilable
conflict between opinions issued by three-judge panels of this court,
the first case to decide the issue is the one that must be followed." Id.
at 334. However, we find no such irreconcilable conflict here. Nash
presents a broad definition of the concept of privity, defining it as
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"merely a word used to say that the relationship between the one who
is a party on the record and another is close enough to include that
other within the res judicata." Nash, 640 F.2d at 494. (internal quota-
tion marks omitted). Klugh simply defines what it means to have a
sufficiently close relationship in the context of virtual representation.
We see no conflict here.
Finally, we note that the mere fact that Appellants helped to
finance McKain’s suit is not sufficient, without other facts, to warrant
the application of res judicata to this case. See General Foods Corp.
v. Mass. Dept. of Public Health, 648 F.2d 784, 788 (1st Cir. 1981)
(noting the general rule that "a non-party is not bound by a judgment
merely because he paid the expenses of a litigation").
As such, the district court erred in granting summary judgment on
res judicata grounds.
III.
American Bancorporation contends that even if this court finds that
the application of res judicata was not proper here, this court should
still affirm the grant of summary judgment on the basis that collateral
estoppel is appropriately applied to Appellants’ 20+ claims. Collateral
estoppel forecloses the relitigation of an issue of fact or law if certain
requirements are met. Sedlack v. Braswell Services Group, Inc., 134
F.3d 219, 224 (4th Cir. 1998). In order to apply the doctrine, the pro-
ponent must establish that: (1) the issue sought to be precluded is
identical to one previously litigated; (2) the issue was actually deter-
mined in the prior proceeding; (3) the determination of the issue was
a critical and necessary part of the decision in the prior proceeding;
(4) the prior judgment was final and valid; and (5) the party against
whom estoppel is asserted had a full and fair opportunity to litigate
the issue in the previous forum. Id.
American Bancorporation’s argument fails because the issue of
whether Appellants are entitled to 20+ benefits was never actually
determined. The record is unequivocal in that regard. As an initial
matter, we note that the R&R explicitly states that "the issue of
whether the participants were entitled to receive 20% + EEC benefits
was not directly litigated in the motions for summary judgment in the
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McKain case . . . ." J.A. 634. Further, the district court explicitly
noted the narrow nature of the issue decided in the McKain order.
There, the court noted that:
By stating that collateral estoppel applies as to the "amend-
ment" of the Plan under such Amendments, the Court is
referring to the Plan’s having satisfied its own written terms
with which compliance is required for an amendment to
have actually taken place, which issue was specifically
reviewed by [the district court] in the McKain case.
Id. at 158. In other words, the district court did not read the McKain
order as having actually determined the issue of whether the employ-
ees were entitled to 20+ benefits, but instead read it as only finding
that the Plan was in fact amended in accordance with its own terms.
A reading of the McKain order supports this conclusion. The spe-
cific subject of that order was whether the amendments of March and
December of 1986 were adopted in accordance with plan documents.
Under ERISA, all plans must be established and maintained pursuant
to a written instrument, which must describe the formal procedures by
which the plan can be amended. 29 U.S.C. § 1102 (a)(1), (b)(3)
(2000). After noting that McKain had originally maintained that he
was entitled to either a 32% or 20+ benefit, the McKain court framed
the issue as follows:
In the motion for summary judgment, [McKain] contends
that the resolutions adopted on March 18, 1986 by the Board
of Directors of Wheeling National Bank constitute an
amendment to the retirement plan. This amendment pro-
vides a benefit equal to 32% of compensation. In the
response to the motion for summary judgment, the plaintiffs
contend that the 32% benefit plan was never implemented
as clarified by the Executive Committee meeting on Novem-
ber 25, 1986.
Id. at 799. That issue is exactly what the McKain court decided, find-
ing that the Plan was properly amended in March of 1986 to provide
32% benefits, and again in December of 1986 to provide 20% bene-
fits.
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That, however, is a very different issue from whether or not Appel-
lants are entitled to 20+ benefits because the August 1986 SPD so
stated. As such, because this issue was not actually determined, we
find that collateral estoppel is not properly applied here.18
IV.
Appellants also argue that the district court erred in dismissing
their § 204(h) notice claim on the grounds of res judicata and collat-
eral estoppel. This issue is resolved by our earlier holdings. As an ini-
tial matter, we note that because res judicata was not properly applied
to this case, it cannot be the basis for dismissal of this claim. Further,
we find that collateral estoppel is inapplicable because the issue here
is not identical to the issue necessarily determined in the McKain mat-
ter.19 As we noted earlier, the issue necessarily determined in the
McKain matter was whether the amendments to the Plan satisfied the
Plan’s own written terms. Given that the issue asserted here is
whether the amendments to the Plan satisfied ERISA’s § 204(h)
notice requirements, we find that this issue was not necessarily
decided in the McKain matter.
18American Bancorporation’s collateral estoppel claims also fail
because of the lack of privity discussed in Part II. Although, "[c]ollateral
estoppel ordinarily applies only against persons who were parties to the
prior suit, because, as a general rule, nonparties will not have had a full
and fair opportunity to litigate the issues raised in the previous action,"
Virginia Hosp. Ass’n v. Baliles, 830 F.2d 1308, 1312 (4th Cir. 1987),
"[u]nder some circumstances, however, nonparties can be precluded
from relitigating issues determined in a prior suit." Id. One such group
of nonparties is those found to have been in privity with a party to the
original suit. See Gross v. Weingarten, 217 F.3d 208, 217 (4th Cir. 2000)
("It is an axiom of collateral estoppel . . . that the defendants can be
bound by the Commission’s findings and order only if they were parties,
or in privity to a party"); Comite de Apoyo a Los Trabajadores Agricolas
v. U.S. Dep’t of Labor, 995 F.2d 510 (4th Cir. 1993) ("Nor is Fairview
in privity with DOL, such that it would be bound by our judgement as
a non-party."). Because Appellants were not in privity with McKain, they
cannot be collaterally estopped from litigating the 20+ issue.
19See ante at 17 note 18.
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Thus, we find that the district court erred in barring Appellants’
§ 204(h) notice claim.
V.
Appellants next challenge the district court’s finding that the Plan
Administrator acted reasonably in calculating benefits for the employ-
ees. Specifically, Appellants argue (1) that the district court’s res judi-
cata ruling had a direct impact on the district court’s abuse of
discretion analysis; (2) that the district court erred in applying this
Circuit’s modification of the degree of deference given to Plan
Administrators where a conflict of interest is present; and (3) the dis-
trict court was overly deferential to the Plan Administrator’s interpre-
tation of the plan where that interpretation was contrary to the
opinions expressed by American Bancorporation’s own experts.
Because we find that our earlier res judicata ruling requires that the
abuse of discretion inquiry be remanded to the district court, we only
address Appellants’ first argument.
A.
A federal court’s ability to review a discretionary decision
of the administrator of an employee benefits plan is signifi-
cantly limited. If "the benefit plan gives the administrator or
fiduciary discretionary authority to determine eligibility for
benefits or to construe the terms of the plan," a reviewing
court may reverse the denial of benefits only upon a finding
of abuse of discretion.
Elliot v. Sara Lee Corp., 190 F.3d 601, 605 (4th Cir. 1999) (citation
omitted). As a general matter, "the administrator’s decision will not
be disturbed if it is the result of a deliberate, principled reasoning pro-
cess and if it is supported by substantial evidence." Id. (internal quota-
tion marks and citation omitted) It is uncontested in this case that the
Plan documents grant the Plan Administrator discretionary authority.20
20"[T]he Plan administrator has the power to construe the Plan and to
determine all questions that may arise under the Plan, including all ques-
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Therefore we review the Plan Administrator’s decisions under an
abuse of discretion standard.
B.
Appellants argue that the application of res judicata to this case
substantially impacted the district court’s abuse of discretion inquiry.
We agree.
In Booth v. Wal-Mart Stores Inc., we examined the factors a court
should consider in performing the requisite abuse of discretion
inquiry, and held that:
a court may consider, but is not limited to, such factors as:
(1) the language of the plan; (2) the purposes and goals of
the plan; (3) the adequacy of the materials considered to
make the decision and the degree to which they support it;
(4) whether the fiduciary’s interpretation was consistent
with other provisions in the plan and with earlier interpreta-
tions of the plan; (5) whether the decisionmaking process
was reasoned and principled; (6) whether the decision was
consistent with the procedural and substantive requirements
of ERISA; (7) any external standard relevant to the exercise
of discretion; and (8) the fiduciary’s motives and any con-
flict of interest it may have.
201 F.3d 335, 342-43 (4th Cir. 2000).
By virtue of its ruling that res judicata applied to Appellants’
claims that they were entitled to receive 20+ benefits, the district
court explicitly refused to consider Appellants’ arguments regarding
20+ benefits with regard to factors two, four, and six of the Booth
analysis. J.A. 643-46. Specifically, with regard to the second element,
tions relating to the eligibility of Employees to participate in the Plan and
the amount of benefit to which any Participant, Beneficiary, spouse or
Contingent Annuitant may become entitled. The Plan Administrator’s
decisions upon all matters within the scope of its authority shall be final."
J.A. 266.
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"the purposes and goals of the plan," the district court refused to con-
sider Appellants’ arguments concerning the August 1986 SPD, which
Appellants allege provides for 20+ benefits. Id. at 643. Similarly, in
discussing the fourth factor, "whether the fiduciary’s interpretation
was consistent with other provisions in the plan and with earlier inter-
pretations of the plan," the district court refused to consider whether
the Plan Administrator failed to follow the August 1986 SPD when
deciding the participants were not entitled to the return of their contri-
butions. Id. at 644. Finally, with regard to the sixth factor, "whether
the decision was consistent with the procedural and substantive
requirements of ERISA," the district court refused to consider Appel-
lants’ argument that by not administering the Plan in accordance with
the August 1986 SPD, the Plan Administrator did not discharge his
duties in accordance with the governing documents as ERISA
requires under 29 U.S.C. § 1104(a)(1)(D).
Given that the district court’s refusal to consider Appellants’ 20+
arguments significantly impacted its abuse of discretion analysis, and
given that we have found that the application of res judicata to that
argument was error, we reverse the district court’s ruling that the Plan
Administrator did not abuse his discretion in calculating Plan benefits.
VI.
Therefore, we reverse the district court’s grant of summary judg-
ment to American Bancorporation and remand for further proceedings
in accordance with this opinion.
REVERSED AND REMANDED
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