Lackey v. C.t. Enterprises, Incorporated; Saco Lowell, Incorporated

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 PAUL L. PHELPS; JERRY H. GILSTRAP;
JERRY W. CUDDY; GERALD W. LYDA;
NINA POSEY; THOMAS R. WILLIAMS;
ALVIN A. STIWINTER; TROY J.
COTTRELL; THOMAS L. CARLSON;
ROBERT W. CARTER; WAYNE F.
MCWHORTER; RODNEY K.
DEANHARDT, SR.; MELVIN M. BROCK;
EDWARD J. COOLEY; CHARLES A.
FURR; FRANCIS C. AIKEN; ELIZABETH
AUDREY LOREDO; JIMMY S. STATON;
NORMAN DAVIS; EUGENE M. KRENEK;
RICHARD N. RYDER, II; KATHERINE D. No. 04-1198 LACKEY,
Plaintiffs-Appellants,
v.
C.T. ENTERPRISES, INCORPORATED;
SACO LOWELL, INCORPORATED,
Defendants-Appellees,
and
CLIFF THEISEN; TOM POMIAN; MIKE
TEMPLETON; BRANCH BANKING AND
TRUST OF SOUTH CAROLINA,
Defendants. 
Appeal from the United States District Court
for the District of South Carolina, at Greenville.
Henry M. Herlong, Jr., District Judge.
(CA-02-3739-6-20)
Argued: September 28, 2004
Decided: January 12, 2005

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Before WILKINSON and WILLIAMS, Circuit Judges, and
Roger W. TITUS, United States District Judge for the
District of Maryland, sitting by designation.
Vacated and remanded for further proceedings by published opinion.
Judge Titus wrote the opinion, in which Judge Wilkinson and Judge
Williams joined.
COUNSEL
ARGUED: John Robert Peace, Greenville, South Carolina, for
Appellants. Vance Earle Drawdy, OGLETREE, DEAKINS, NASH,
SMOAK & STEWART, P.C., Greenville, South Carolina, for Appel-
lees. ON BRIEF: Brian D. Black, OGLETREE, DEAKINS, NASH,
SMOAK & STEWART, P.C., Greenville, South Carolina, for Appel-
lees.
OPINION
TITUS, District Judge:
On November 5, 2002, Paul L. Phelps and twenty-one other indi-
viduals (the "Employees") filed a complaint in the United States Dis-
trict Court for the District of South Carolina, Greenville Division,
against Cliff Theisen ("Theisen"), C.T. Enterprises, Inc. ("C.T."),
Saco Lowell, Inc. ("Saco Lowell"), Tom Pomian ("Pomian"), Mike
Templeton ("Templeton"), and Branch Banking and Trust of South
Carolina ("BB&T"), alleging causes of action for benefits pursuant to
29 U.S.C. § 1132(a)(1)(B) breach of fiduciary duty pursuant to 29
U.S.C. § 1104, money damages for unpaid wages, compensation and
other amounts due and owing, conspiracy to misappropriate funds,
and for declaratory relief against BB&T. It does not appear that
BB&T was ever served, and the Employees later filed a Notice of
Voluntary Dismissal as to that defendant. From an order of the Dis-
trict Court granting summary judgment in favor of all remaining
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defendants, the Employees appeal. For the reasons set forth below, we
vacate and remand the case for further proceedings.
I.
Effective April 5, 1999, Saco Lowell, an employer which then
manufactured equipment used in the textile industry, established for
its employees the Saco Lowell, Inc., Group Health Benefits Plan ("the
Plan".) Saco Lowell, in addition to being employer of the Employees,
was the Plan Sponsor and the Plan Administrator. Funding for the
Plan was derived from a combination of funds of Saco Lowell and
contributions made by the Employees.1 Payment of benefits under the
Plan was to be made through the Claims Administrator, Kanawha
Benefits Solutions, Inc., a subsidiary of Kanawha HealthCare Solu-
tions, Inc. ("Kanawha").
Effective July 1, 2000, the Plan was amended so as to substitute
C.T. as the Employer and the Plan Administrator.2 The 2000 amend-
ment stated that the sources of contributions funding benefits under
the plan were "C.T. Enterprises, Inc. and its employees." Beginning
on or about the same date, it is not disputed that C.T. did not provide
Kanawha with sufficient funds to pay in a timely manner all outstand-
ing claims alleged to be due under the terms of the Plan. Between July
24, 2000 and December 5, 2000, C.T. failed to pay for a total of
$286,004.18 in medical plan claims invoiced by Kanawha. Of this
amount, the employees in this case experienced unpaid medical and
dental claims in the amount of $125,343.77.3
1The contributions by the Employees were made by payroll deduc-
tions. Contributions were $1.00, $17.00, or $21.00 per week, depending
on the level of coverage.
2The change apparently was the result of C.T.’s acquisition of Saco
Lowell’s assets. Saco Lowell is described in the amendment as a subsid-
iary of C.T.
3The employees in the instant case are the second group to file suit
arising out of unpaid medical and dental claims under the Plan. In the
earlier case, Clarey, et al. v. Theisen, et al., No. 6:01-224-20, the United
States District Court for the District of South Carolina denied the Defen-
dants’ Motion for Summary Judgment, after which the case was settled.
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On November 21 2000, C.T. terminated the Plan effective Novem-
ber 28, 2000. In deposition testimony, Templeton — Saco Lowell’s
comptroller who was also an officer of C.T. — described how the
Plan became insolvent:
Then [in July, 2000] we had, about the same time that the
bank told us that they weren’t going to continue to fund us
and we ran out of money for payroll, we had a week that hit
that was about seventy four thousand, seventy five thousand
dollars [in Medical Plan claims]. So that kind of threw
everything out of kilter right there. It was just one big one
we had, I think, three employees or spouses or something
had like heart attacks and strokes all within one short period
of time and all the bills hit at once and at that time Kanawha
did not want us to pay partial. They wanted the whole thing
or nothing and that . . . we didn’t have seventy four thou-
sand dollars at all. I mean, the company did not have it, the
bank was not advancing, and that’s when everything really
fell apart on the health plan . . . That was July, mid-July.
(J.A. 66, Line 17 - J.A. 67, line 7). Templeton went on to testify that
C.T. had been forced to choose between funding the Plan or the com-
pany’s payroll from mid-July 2000 until the Plan was terminated in
November 2000. In this regard, he testified as follows:
Q. At that point [in mid-July], at that point that there was
seventy four thousand [in medical claims due] and you
didn’t have seventy four thousand, at that point you’re
prioritizing debts. Who made the decision not to divert
money in to pay those health claims but to divert to pay
other things? Whose decision was that?
A. I guess it would have been Cliff’s [Theisen] ultimately.
I’m not sure that a conscious decision was made to do
that. Like I said, at that time Kanawha only wanted the
whole payment. They did not want to go in it and pull
out, you know, we’ll pay you half of it this week, half
of it next week, and you release half the checks and
half the checks. They didn’t want to do that. So it came
down to paying payroll or paying the health claims.
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(J.A. 67, lines 8-21).
The financial condition of Saco Lowell and C.T. in the first half of
2000 was generally known to be poor. Employees were also aware
that the companies’ financial problems persisted as the year prog-
ressed. During the second half of 2000, Saco Lowell management met
with Employees at least once to inform them, in general terms, of the
Plan’s financial problems. At this meeting, and in other informal con-
versations with individual Employees, Theisen assured the workers
that "we’re doing everything we could" to pay the outstanding claims.
(J.A. 69, lines 7-12.) Nonetheless, the record reveals no instance in
which the Employees were ever specifically informed that the Plan
Administrator and Employer had all but ceased to transfer its required
contributions to Kanawha.
In November 2000, the month in which the Plan was terminated,
Theisen told the Employees at a meeting that "we didn’t have the
money to pay them, that everybody was on temporary layoff for the
next week and that we would call them and let them know when
checks would be ready and everything." (J.A. 72, lines 12-16). With
regard to payment of claims under the Plan, Templeton stated that he
recalled "questions about the health care which Cliff said that we
were doing everything we could do to get paid." (J.A. 72, lines 18-
20).
On November 7, 2000, Kanawha advised the Employees that it had
processed claims incurred by the Employees or their dependents in
good faith, and had repeatedly requested funding for these claims
from C.T., but that its requests have gone unanswered. Therefore,
Kanawha advised the Employees, "we are notifying you of C.T.
Enterprises, Inc. Group Health Benefits Plan’s failure to provide
funds to allow us to release payment of these claims." (J.A. 47).
When notice was given to the Employees on November 21, 2000
of termination of the Plan, the Employees were only told that "any
and all charges incurred after the Effective Date [November 28, 2000]
for services provided or other costs or expenses incurred after the
Effective Date, will not be covered by the Plan." (J.A. 48). No men-
tion was made of the status of costs or expenses incurred prior to the
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effective date nor the status of the monetary contributions required of
the Employer and Plan Administrator under the Plan document.
II.
In the proceedings below, Theisen, Templeton, Pomian, C.T. and
Saco Lowell moved for summary judgment arguing, inter alia, that
they were not fiduciaries, but if they were, they did not breach any
fiduciary duties. The District Court, "without deciding whether the
Defendants were fiduciaries and/or acted at some time in a fiduciary
capacity," concluded that there was no breach of any fiduciary duty.
The District Court rejected the argument of the Employees that there
was a duty to fund the Plan so as to pay claims of participants and
beneficiaries, and agreed with the Defendants that funding the Plan
is a "business, not fiduciary, function." (J.A. 287). As such, the Dis-
trict Court concluded that "any failure to fund the Plan is not a breach
of fiduciary duty in this case." Id.
Responding to an argument of the Employees that the Plan assets
had been co-mingled in a general business account rather than being
held in trust, and that such conduct was a breach of fiduciary duty,
the District Court concluded that
"[t]o the extent such co-mingling is a breach of fiduciary
duty, the Court finds that the plaintiffs were not injured
because the amount paid out in claims by the Plan far
exceeds the total amount of employee contributions. In fact,
employer contributions of Nine Hundred Twenty-Eight
Thousand Dollars ($928,000.00) were made to the Plan in
excess of the employee contributions." (J.A. 288).
The District Court rejected an argument by the Employees that
Theisen, Templeton, Pomian, C.T. and Saco Lowell had breached a
fiduciary duty by failing to provide complete and accurate informa-
tion to the Plan beneficiaries regarding the financial status of the Plan.
The District Court noted that in Griggs v. E.I. DuPont De Nemours
& Co., 237 F.3d 371 (4th Cir. 2001), this Court had "addressed the
issue of an affirmative duty to provide information to a beneficiary."
However, the District Court found that "that case is easily distinguish-
able from the facts before the Court." (J.A. 288). Finally, the District
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Court addressed the argument by the Employees that "29 U.S.C.
§ 1021 imposed such a duty," and found "this argument without
merit." Id. No explanation was given by the District Court for either
of these last two conclusions. From the final judgment entered against
them on January 12, 2004, the Employees appealed to this Court.
III.
This Court reviews a grant of summary judgment de novo and
applies the same standard as the District Court. The propriety of
importing the summary judgment standard whole-cloth into the
ERISA context has already received extensive attention from a sister
circuit. See Wilkins v. Baptist Healthcare Sys., Inc., 150 F.3d 609, 617
(6th Cir. 1998). Though we share the reservations that the Sixth Cir-
cuit articulates, see Berry v. Ciba-Geigy, 761 F.2d 1003, 1007 (4th
Cir. 1985), we note, as it does, that such perplexities arise chiefly
when courts are reviewing claims for benefits under 29 U.S.C.
§ 1132(a)(1)(B). Appellants press no such claims here. We therefore
examine their appeal under the normal summary judgment standard
and its attendant caselaw. See Jones v. Am. Gen. Life & Accident Ins.
Co., 370 F.3d 1065, 1069 (11th Cir. 2004); Bixler v. Central Penn.
Teamsters Health & Welfare Fund, 12 F.3d 1292, 1297-98 (3d Cir.
1993).
IV.
In 1974, Congress passed the Employee Retirement Income Secur-
ity Act, commonly known as ERISA. Pub.L. No. 93-406, 88 Stat.
829, codified at 29 U.S.C. § 1001 et seq. (2003)). A primary purpose
of the Act is
to protect interstate commerce and the interests of partici-
pants in employee benefit plans and their beneficiaries, by
requiring the disclosure and reporting to participants and
beneficiaries of financial and other information with respect
thereto, by establishing standards of conduct, responsibility,
and obligation for fiduciaries of employee benefit plans, and
by providing for appropriate remedies, sanctions, and ready
access to the Federal courts.
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29 U.S.C. § 1001(b).
Some of the basic standards for any employee benefit plan are that
it must be "established and maintained pursuant to a written instru-
ment" which "shall provide for one or more named fiduciaries who
jointly or severally shall have authority to control and manage the
operation and administration of the plan." 29 U.S.C. § 1102(a)(1).
Section 1103(c)(1) provides that the "assets of a plan shall never inure
to the benefit of any employer and shall be held for the exclusive pur-
poses of providing benefits to participants in the plan and their benefi-
ciaries and defraying reasonable expenses of administering the plan."
For purposes of ERISA, Congress provided that
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 disposi-
tion of its assets, (ii) he renders investment advice for a fee
or other compensation, direct or indirect, with respect to any
monies or other property of such plan, or has any authority
or responsibility to do so, or (iii) he has any discretionary
authority or discretionary responsibility in the administra-
tion of such plan.
29 U.S.C. § 1002(21)(A).
In Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 61 (4th Cir.
1992), cert. denied 506 U.S. 1081 (1993), this Court emphasized that
fiduciary duty under ERISA is not an all-or-nothing concept: that is,
the inclusion of the phrase "to the extent" in § 1002(21)(A)
means that a party is a fiduciary only as to the activities
which bring the person within the definition. The statutory
language plainly indicates that the fiduciary function is not
an indivisible one. In other words, a court must ask whether
a person is a fiduciary with respect to the particular activity
at issue.
(citations omitted).
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In determining whether a person is a fiduciary with respect to the
particular activity at issue, a court is required to examine the relevant
documents to determine whether the conduct at issue was within the
formal allocation of responsibilities under the plan documents and, if
not, ascertain whether, in fact, a party voluntarily assumed such
responsibility for the conduct at issue. Id.
Where, for example, an employer is entrusted with employee funds
for remittance to a claims administrator, along with any employer
contributions, the employer is acting in a fiduciary capacity under
ERISA. Broadnax Mills, Inc. v. Blue Cross & Blue Shield of Virginia,
867 F. Supp. 398, 405 (E.D. Va. 1994).
In their brief, Saco Lowell and C.T. state that the "undisputed evi-
dence below was that all of the employee contributions to the Medical
Plan were indeed transferred to the Plan’s Claims Administrator, and
used to fund claims and reasonable costs of administration." (Appel-
lee Br. at 16). As support for this statement, they point to an affidavit
by Theisen, C.T.’s CEO, in which he states as follows:
From the inception of the Medical Plan, the amounts with-
held from Saco Lowell employees’ pay for contributions to
the Medical Plan were never enough to fund the claims and
administrative expenses of the Medical Plan. To illustrate
this point, from the date the Medical Plan was established
until the time the Medical Plan was terminated, Saco Lowell
made employer contributions to the Medical Plan (to pay for
claims and administrative expenses of the plan) that were
approximately $928,000.00 over and above the employee
contributions.
(J.A. 104-5). This statement by Theisen may be correct in that the
company may have made contributions during the life of the plan that
exceeded Employee contributions by $928,000.00, but it does not
support the proposition that all deductions from Employee paychecks
were remitted to Kanawha, the Claims Administrator. The record evi-
dence strongly indicates otherwise.
For example, Templeton, C.T.’s Controller, testified that the
deductions were a "fictional transaction," that "no money was actually
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moved from one account to another," and the funds were "never
sequestered" and "never really distinguished from the company
account." (J.A. 128). After July 24, 2000, until shortly after termina-
tion of the Plan, only seven payments were made to Kanawha, all of
relatively small amounts, so that the accrued liability for unpaid medi-
cal claims reached $286,004.18 by December 5, 2000. (J.A. 282).
Although Employees were paid weekly and deductions for the
medical plan withheld from their paychecks, the amounts remitted to
Kanawha were not at weekly intervals, were not consistent in amount,
and, other than a small ($443.58) check issued to Kanawha on
November 13, there were no payments to it after October 4, 2000. Id.
At the same time, C.T. was presumably withholding from the pay-
checks of its Employees amounts intended by them to fund the Plan
on whose benefits they were relying. While the record is unclear as
to the number of Employees, if there were only fifty contributing at
the rate of $17.00 per week, there would have been a liability to the
Plan of at least $850.00 per week. Based on the limited record before
us, it is thus very difficult to view as "undisputed" the fact that C.T.
transferred to Kanawha "all sums" withheld from its Employees for
the Plan from July through its termination in November of 2000.
In a case with significant similarities to the instant case, the Eastern
District of New York concluded that a financially distressed employer
had the fiduciary responsibility to make contributions due to a plan,
and that ERISA made no exceptions based on the financial condition
of the plan sponsor. Pension Benefit Guar. Corp. v. Solmsen, 671 F.
Supp. 938 (E.D.N.Y. 1987). There, where an employer had "allocated
available monies to pay other company expenses rather than the Plan
contributions deducted from employee paychecks," the employer was
directed to "answer in damages for the consequences." Id. at 945.4
4After the decision in Solmsen, The Department of Labor issued a reg-
ulation that expressly provided that employee contributions are plan
assets. See 29 C.F.R. § 2510.3-102 (2004). This regulation further
strengthens the notion that a breach of fiduciary duty occurred when the
Plan Administrator and Employer neglected to transfer to Kanawha the
deductions from Employees’ paychecks.
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For the foregoing reasons, it is evident that the district court misap-
prehended the nature of the legal theory informing Employees’ alle-
gation that appellees violated ERISA by failing to fund the plan. The
malfeasance of which appellants complained below, and which they
reiterate on this appeal, was the particular failure to remit their pay-
check deductions to Kanawha as much as any general neglect to fund
the Plan in full. The District Court’s vague statement that funding the
Plan is a "business, not fiduciary, function" reveals an incomplete
understanding of the precise nature of the legal theory under which
Employees are proceeding.
Appellants also allege that the district court erred in holding that
they had no claim for breach of fiduciary duty based on appellees’
failure to inform them in sufficient detail about the Plan’s financial
predicament in the second half of 2000. This circuit has already care-
fully outlined the general conditions under which an ERISA fiduciary
has a duty to refrain from misleading interactions with beneficiaries
and those occasions on which a fiduciary has an affirmative duty to
disclose information to such beneficiaries. See Griggs, 237 F.3d at
380. The district court was aware of these standards when it dismissed
this claim for breach of fiduciary duty. (See J.A. 288). As we have
demonstrated, however, the lower court misapprehended the legal the-
ory on which Employees based their other claim for breach of fidu-
ciary duty. After proper consideration of that theory, namely that the
Employer failed to remit the Employees’ own paycheck contributions
to the Claims Administrator, the district court may find that a differ-
ent resolution of the incomplete disclosure allegation, grounded in
Griggs, is appropriate on these facts. Given the district court’s legal
error on the first theory of liability, and considering the close relation-
ship between the factual predicates supporting that theory and those
underlying the Griggs claim, we think it best to remand the case so
that the district court may have the opportunity to further develop the
evidence in a manner consistent with a proper interpretation of the
law. See United States v. Booze, 293 F.3d 516, 519 (D.C. Cir. 2002);
Kurdziel v. Pittsburgh Tube Co., 416 F.2d 882, 886 (6th Cir. 1969).
V.
Viewing the facts in the record and the reasonable inferences in the
light most favorable to the Employees, we conclude that a reasonable
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fact finder could find that C.T., and Theisen, Pomian and Templeton,
the officers of C.T. who directed actions on its behalf, were fidu-
ciaries under ERISA when, as representatives of the Employer and
Plan Administrator, they directed that the Employees’ own paycheck
contributions, which were then due for payment by the Claims
Administrator (Kanawha) to third parties under the provisions of the
Plan, be diverted instead for other purposes. Under the terms of the
Plan documents, C.T. Enterprises, Inc., was identified as both the Plan
Sponsor and Plan Administrator. As such, C.T., the corporate entity,
was expressly made a fiduciary for administration of the assets of the
Plan, which consisted of both corporate and employee contributions.
In addition, it is not disputed that Theisen, Pomian and Templeton
acting, respectively, as C.T.’s CEO, President and Controller, made
the decision to pay other corporate expenses of C.T., rather than to
remit the Employees’ own paycheck deductions to the Plan. Because
they voluntarily assumed the responsibility of a fiduciary, they
become subject to the obligations of a fiduciary under ERISA. In such
circumstances, a renewed examination by the District Court of both
Employees’ claims for breach of fiduciary duty is appropriate.
Accordingly, it was error for the District Court to grant summary
judgment against the Employees, and the judgment must be vacated
and remanded for further proceedings.
VI.
In closing, we draw the District Court’s attention to precedent
interpreting the statutory provisions under which Employees have
grounded their claims. These cases govern the nature of the proceed-
ings on remand.
In Berry v. Ciba-Geigy, 761 F.2d 1003 (4th Cir. 1985), this court
considered whether a claimant under ERISA could insist upon a jury
trial. We decided that congressional silence on this issue in the text
of the statute "returned [the question] to the common law of trusts."
Id. at 1007. Under such law, "proceedings to determine rights under
employee benefit plans are equitable in character and thus a matter for
a judge, not a jury." Id. Putting such issues to the jury, we held, would
erode the deference to the ERISA administrator that the Act’s "abuse
of discretion" standard required. Id.
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Berry involved a claim for benefits under 29 U.S.C.
§ 1132(a)(1)(B). Thomas v. Oregon Fruit Prods Co., 228 F.3d 991,
997 (9th Cir. 2000), likewise references other circuit cases holding
that no jury trial right attaches to actions under this statutory provi-
sion. Employees’ claim for benefits under § 1132(a)(1)(B) was dis-
missed by the District Court because the claimants had not exhausted
their administrative remedies and had not named the Plan as a defen-
dant. This aspect of the District Court’s ruling was not challenged on
appeal.
Any potential relief available to the Employees going forward must
therefore be grounded in the "other equitable relief" language of 29
U.S.C. § 1132(a)(3).5 Providing, as it does, for only equitable reme-
dies, this section of ERISA likewise entails no right to jury trial. See
Bittinger v. Tecumseh Prods. Co., 123 F.3d 877, 883 (6th Cir. 1997);
Harsch v. Eisenberg, 956 F.2d 651, 654 n.4 (7th Cir. 1992); Cox v.
Keystone Carbon Co., 861 F.2d 390, 393 (3d Cir. 1988). Further pro-
ceedings in this case must therefore occur before the district court.
VACATED AND REMANDED
FOR FURTHER PROCEEDINGS
5The parties have disagreed with respect to the remedies available
under this provision of ERISA for those in the Employees’ situation. The
question of a remedy must be decided in the first instance by the District
Court on remand in the event that liability attaches under the principles
we have set forth herein. See Griggs v. E.I. DuPont de Nemours & Co.,
385 F.3d 440 (4th Cir. 2004); Griggs v. E.I. DuPont de Nemours & Co.,
237 F.3d 371 (4th Cir. 2001).
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