Arendt et al v. Solis, No. 2:2011cv05135 - Document 60 (E.D. Wash. 2014)
Court Description: ORDER Granting Motion to Dismiss (ECF No. 45 ). Signed by Senior Judge Lonny R. Suko. (PL, Case Administrator)
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Arendt et al v. Solis Doc. 60 1 2 3 4 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON 5 6 7 8 9 10 11 12 13 14 15 16 17 GERALD C. ARENDT and DAVID D. BROWN, ) ) NO. CV-11-5135-LRS ) Plaintiffs, ) ORDER GRANTING MOTION ) TO DISMISS (ECF No. 45) v. ) ) WASHINGTON-IDAHO) MONTANA CARPENTERS) EMPLOYERS RETIREMENT ) TRUST FUND and ZENITH ) ADMINISTRATORS, INC., ) ) Defendants, ) ) and ) ) UNITED STATES OF AMERICA, ) ) Intervenor-Defendants ) ______________________________ ) 18 BEFORE THE COURT is the Defendants’ Motion To Dismiss (ECF No. 19 45), filed January 28, 2014. A telephonic hearing was held April 10, 2014. Jeffry K. 20 Finer and Gery R. Gasick participated on behalf of the Plaintiffs; Robin L. Haynes 21 and William M. Symmes participated on behalf of Defendants; and Kenneth E. Sealls 22 participated 23 Washington-Idaho-Montana Carpenters-Employers Retirement Trust Fund (hereafter 24 "Fund") and Zenith American Solutions, Inc., (f/k/a Zenith Administrators, Inc.) 25 ("Zenith") (collectively "Defendants"), jointly move for dismissal of Plaintiffs’ First 26 Amended Complaint for Declaratory Judgment and Injunctive Relief (ECF No. 28) 27 ("Amended Complaint") pursuant to Fed.R.Civ.P. 12(b)(6). At the conclusion of oral 28 argument on April 10, 2014, the Court took the matter under advisement. Upon on behalf of the Intervenor United States. Defendants ORDER - 1 Dockets.Justia.com 1 consideration of the written memoranda, the arguments of counsel, and the record, the 2 Court grants Defendants' motion as provided herein. 3 I. PROCEDURAL/FACTUAL BACKGROUND 4 On September 13, 2011, Plaintiffs filed a complaint against the Secretary of 5 Labor alleging that the elimination of the subsidized early retirement option of their 6 retirement plan violated the Due Process Clause of the Fifth Amendment and that the 7 distinction between early retirees already in “pay status” and those not yet retired 8 amounts to a violation of the equal protection component of the Due Process Clause. 9 The background facts that pertain to Plaintiffs’ original Complaint are recited in the 10 Order Granting Motion to Dismiss entered on March 9, 2014. (ECF No. 16) and will 11 not be repeated here. 12 On March 9, 2012, judgment was entered by this Court in favor of the 13 Secretary of Labor. (ECF No. 18). Plaintiffs appealed that judgment to the Ninth 14 Circuit Court of Appeals. (ECF No. 23). On September 3, 2013, the Ninth Circuit 15 vacated the trial court judgment and instructed the Court to dismiss the case without 16 prejudice. The Ninth Circuit ruled that Plaintiff Arendt lacked standing to bring a 17 claim that the elimination of his early retirement benefits violated the due process and 18 equal protection clauses. (ECF No. 24 at 3). Because the Circuit found it was without 19 jurisdiction to rule, the question of the PPA's1 constitutionality was not decided. (ECF 20 No. 24 at 4). On October 17, 2013, Plaintiffs filed their First Amended Complaint, 21 substituting the Retirement Fund Trustees (“the Fund”) and the Plan Administrator 22 (“Zenith”) as defendants in place of the Secretary of Labor. (ECF No. 28). Plaintiffs' 23 claims under the First Amended Complaint include: (1) a retroactive taking in 24 violation of the Fifth Amendment; and (2) gross discrimination among certain Fund 25 participants in violation of the equal protection clause of the Fifth Amendment. 26 27 28 1 Pension Protection Act of 2006 (“PPA”), Pub. L. No. 109-280, 120 Stat. 780 (Aug. 17, 2006). ORDER - 2 1 According to their First Amended Complaint, Plaintiffs participate in a 2 collectively bargained multiemployer plan that offered an early retirement pension 3 benefit known as the “Rule of 80 Early Retirement” pension (“the Plan”) that allowed 4 participants to retire before age 65 without reducing their basic retirement benefit. In 5 order to be eligible for the “Rule of 80,” participants had to reach a total of 80 when 6 adding (i) their age, and (ii) the number of years in which they participated in the plan 7 and contributed 400 or more working hours. Summary Plan Description and 8 Retirement Plan, as amended January 1, 2001 (“2001 Plan”), ECF No. 11-2 at 12. 9 In August of 2009, the Plan notified Plaintiffs and other Plan participants that due to 10 recent severe investment losses and the decline in the stock market, the Plan was 11 underfunded and in “critical status.” ECF No. 16 at 2. Because of the financial 12 insecurity of the Plan—then less than 65 percent funded and projected to be 13 underfunded for the Plan year beginning July 1, 2013—it was required to take 14 measures in order to continue funding normal benefits to present and future retirees. 15 Id. Acting pursuant to the PPA, the Plan’s Board of Trustees decided to eliminate 16 the Plan’s adjustable benefits, including subsidized early retirement. Id. 17 II. DISCUSSION 18 A. Fed.R.Civ.P. 12(b)(6) Standard 19 A Rule 12(b)(6) dismissal is proper only where there is either a "lack of a 20 cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable 21 legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). 22 In reviewing a 12(b)(6) motion, the court must accept as true all material allegations 23 in the complaint, as well as reasonable inferences to be drawn from such allegations. 24 Mendocino Environmental Center v. Mendocino County, 14 F.3d 457, 460 (9th Cir. 25 1994); NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). The complaint 26 must be construed in the light most favorable to the plaintiff. Parks School of 27 Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). The sole issue 28 raised by a 12(b)(6) motion is whether the facts pleaded, if established, would support ORDER - 3 1 a claim for relief; therefore, no matter how improbable those facts alleged are, they 2 must be accepted as true for purposes of the motion. Neitzke v. Williams, 490 U.S. 3 319, 326-27, 109 S.Ct. 1827 (1989). The court need not, however, accept as true 4 conclusory allegations or legal characterizations, nor need it accept unreasonable 5 inferences or unwarranted deductions of fact. In re Stac Electronics Securities 6 Litigation, 89 F.3d 1399, 1403 (9th Cir. 1996). 7 As it is not necessary for the court to review materials outside of the pleadings 8 in order to make its determination in this matter, Defendants’ motion is not converted 9 to a summary judgment motion under Fed. R. Civ. P. 56 and reliance on the 12(b)(6) 10 standard is appropriate. 11 B. Defendants’ and Intervenor’s Arguments 12 1. 13 Defendants and Intervenor (collectively “Defendants”) argue that Plaintiffs' 14 claims for violations of the 5th Amendment of the U.S. Constitution must be dismissed 15 because the Fund and Zenith are private entities, not government or state actors. 16 Citing Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 936-937 (1982), Defendants 17 conclude that because state action is required for Plaintiffs’ Equal Protection and 18 takings claims, Sutton2 should apply to and preclude the bringing of their 19 constitutional claims. The Fund and Zenith are not government or state actors. 20 In accordance with the PPA, the Plan sponsor (the Plan’s Board of Trustees) 21 agreed that one of the ways they would rehabilitate the Plan was by eliminating all 22 23 2 In Sutton v. Providence St. Joseph Medical Ctr., 192 F.3d 826, 839 (9th 24 Cir. 1999), the Ninth Circuit addressed “whether governmental compulsion in the 25 form of a general statute, without more, is sufficient to deem a private defendant a 26 governmental actor,” and concluded that a “plaintiff must establish some other 27 nexus sufficient to make it fair to attribute liability to the private entity.” Id. at 28 841. ORDER - 4 1 of the adjustable benefits offered by the Plan, including subsidized early retirement.3 2 The Plan did not reduce accrued benefits payable at normal retirement age and did not 3 cut any benefits of participants who retired and entered “pay status” (as defined in 4 ERISA § 305(I)(6), 29 U.S.C. §1085(I)(6)) before they were notified that the Plan 5 was in critical status. Defendants conclude that there is no state action sufficient to 6 support a constitutional argument in this matter, especially when coupled with this 7 Court’s previous finding that Plaintiffs’ loss of early retirement benefits pursuant to 8 a Rehabilitation Plan adopted by their private pension plan, was not an impermissible 9 taking, regulatory or otherwise, by the Government. 10 2. The PPA is rationally based legislation and not unconstitutional. 11 In August of 2009, the Retirement Plan, a collectively bargained multiemployer 12 plan, notified its participants that it had suffered severe investment losses in the stock 13 market decline of 2008 and early 2009, and was underfunded and in "critical status." 14 The notice explained that the Plan was less than 65 percent funded and that the Plan 15 was projected to have an accumulated funding deficiency for the plan year beginning 16 July 1, 2013. As a result, the Retirement Plan was required under the PPA, to take 17 steps to resolve its funding crisis so that it could continue to fund normal benefits for 18 current and future retirees. ERISA § 302, 29 U.S.C. §1082. Although the PPA gives 19 the plan sponsor (subject to collective bargaining) the ability to make such decisions, 20 it protects participants' ability to receive normal retirement benefits. ERISA 21 §305(e)(8)(B), 29 U.S.C. §1085(e)(8)(B). 22 23 The PPA's express authorization of the reduction or elimination of adjustable benefits (including early retirement benefits), through rehabilitation plans of those 24 25 3 “Rule of 80 Early Retirement Pension,” (“Rule of 80”), was funded at 26 Section 3.08 of the Plan by an allocation of “20% of all negotiated Employer 27 Contributions” via an additional and dedicated payroll contributions from Active 28 Participants. ORDER - 5 1 plans in critical status, is an exception to ERISA's general "anti-cutback rule." 2 ERISA § 204(g), 29 U.S.C. § 1054(g). 4 3 Defendants suggest that Plaintiffs’ interest in employer-subsidized early 4 retirement benefits was never absolute, but always was subject to elimination in the 5 event of plan termination under ERISA Section 4041A, 29 U.S.C. § 1341a. 6 Moreover, not only is the Government not taking any of the Plan’s (or Plaintiffs’) 7 assets away through the PPA, but that legislation is directed to ensuring that plans 8 facing dire financial circumstances can continue to pay normal retirement benefits 9 without defaulting. 10 C. Plaintiffs’ Argument 11 In opposing Defendant’s Motion to Dismiss, Plaintiffs seek a ruling that the 12 PPA as applied to Plaintiffs creates (1) an unconstitutional taking under the Takings 13 Clause of the Fifth Amendment, and (2) a denial of Equal Protection under the Fifth 14 Amendment. 15 /// 16 /// 17 18 4 ERISA's anti-cutback rule provides, with certain exceptions not relevant 19 here, that “[t]he accrued benefit of a participant under a plan may not be decreased 20 by an amendment of the plan.” 29 U.S.C. § 1054(g)(1). The rule applies to the 21 participant's basic accrued benefit, as well as to accrued early retirement benefits, 22 retirement-type subsidies, and optional forms of benefits. 29 U.S.C. § 1054(g)(2). 23 Such benefits may only be eliminated or reduced by amendment on a prospective 24 basis, i.e., with respect to benefits that have not yet accrued. Allen v. Honeywell 25 Retirement Earnings Plan, 382 F.Supp.2d 1139, 1149-50 (2005) citing Campbell 26 v. BankBoston, 327 F.3d 1, 8–9 (1st Cir.2003) (holding that elimination of a future 27 expected benefit that has not yet accrued does not constitute an ERISA violation). 28 ORDER - 6 1 Plaintiffs assert, citing Eastern Enterprises,5 that the Defendants’ rehabilitation 2 plan is mandated by the PPA pursuant to 29 U.S.C. §1085(a)(2)(A) and allegedly 3 results in a retroactive elimination of previously “earned” and promised benefits. 4 Therefore, Plaintiffs reason, this presents an “economic regulation” that can “effect 5 a taking,” in violation of the “Takings Clause of the Fifth Amendment.” Plaintiffs 6 claim that Defendants' rehabilitation plan was mandated by the PPA. Plaintiffs 7 appear to argue, citing snippets of the lengthy Eastern Enterprises opinion, that the 8 “mandated” rehabilitation plan reneged on a promise under contract because such a 9 rehabilitation plan trumps the protection of ERISA's "anti-cutback" rule and uses ". 10 . . a shorter cut than the constitutional way of paying for the change." Eastern 11 Enterprises, 524 U.S. 498 at 528, 522- 523 (1998), quoting Pennsylvania Coal Co. 12 v. Mahon, 260 U.S. 393, 416 (1922). 13 Plaintiffs further argue that they have a fundamental right to subsidized early 14 retirement benefits and that their constitutional challenge to § 202 of the PPA is 15 subject to higher scrutiny because its application in this case violates Plaintiffs' 16 fundamental rights by allowing a retroactive taking of their early retirement benefits. 17 Plaintiffs conclude that the PPA provision fails such strict scrutiny. 18 D. Analysis 19 The Court previously found that Plaintiffs failed to demonstrate any state 20 action, which is a necessary predicate to a suit alleging due process and equal 21 protection claims. Similarly, the Court again finds that Plaintiffs’ Equal Protection 22 and takings claims in the Amended Complaint fail to demonstrate any government 23 action involving these Defendants who are private actors, and whom Plaintiffs allege 24 were “compelled” to act by the government. The mere existence of the provisions in 25 the PPA allowing the elimination of adjustable benefits does not amount to state 26 27 5 Eastern Enterprises v. Apfel, 524 U.S. 498, 522-39 (1998). 28 ORDER - 7 1 action. Unlike the statute that is at issue in the Eastern Enterprises case, the PPA 2 does not mandate a specific course of action but permits discretion to be exercised, 3 provided that pension plans in critical financial status are addressed in a rational 4 manner. Although Plaintiffs assert that the notice sent out to participants affected by 5 the rehabilitation plan has language referencing the mandatory nature of the action 6 being taken, this does not change the fact that no specific course of action was 7 mandated by the PPA. 8 9 The Defendants exercised complete, autonomous discretion in creating a rehabilitation plan for the Fund. The PPA directed that the Fund's Board adopt and 10 implement a rehabilitation plan to ensure normal benefits were paid, as the Fund 11 was less than 65 percent funded and was projected to have an accumulated funding 12 deficiency as early as July 2013. (ECF No. 11 at Exhibit 1). The collective 13 bargaining parties to the Fund also agreed with the decision to eliminate the Rule of 14 80 benefits. No governmental actor coerced, directed, suggested, or even reviewed 15 Defendants' actions in creating and dictating the contents of a rehabilitation plan. 16 Simply put, Defendants (the Fund and Zenith) followed the law as private actors. 17 The Court also previously rejected an earlier argument by Plaintiffs relating to 18 a “takings” claim that did not rely on the Fifth Amendment Takings Clause. Plaintiffs 19 now specifically allege a takings claim under the Takings Clause. 20 essentially seek a determination of whether Defendants violated ERISA's anti-cutback 21 statute,6 in eliminating early retirement to those participants that are not in “pay 22 status.” While it is well established as a matter of law that government regulation 23 can effect a Fifth Amendment taking,7 not every economic change required by law 24 constitutes a “taking” in violation of the Fifth Amendment. Deltona Corp. v. U. S., Plaintiffs 25 26 6 Section 204(g), 29 U.S.C. § 1054(g) (2010). 27 7 Penn Central Transp. Co. v. New York City, 438 U.S. 104, 123, 98 S.Ct. 28 2646, 2658, 57 L.Ed.2d 631 (1978), ORDER - 8 1 657 F.2d 1184, 1191 (1981). 2 Plaintiffs appear to argue that the early retirement benefit established in § 3 Section 3.08 of the Plan at issue is protected by the anti-cutback statute, § 204(g), 29 4 U.S.C. § 1054(g), which Plaintiffs suggest “extends to all participants the right to 5 ‘grow into’ a benefit subsidy by satisfying the plan's pre-amendment eligibility 6 requirements.” See Bellas v. CBS, Inc., 221 F.3d 517, 527 (3d Cir.2000). In other 7 words, Plaintiffs would prefer that if a plan is amended to eliminate a subsidized early 8 retirement benefit for employees who have completed or nearly completed the 9 pre-amendment eligibility requirements but are not in “pay status,” an employee 10 should be given the right to “grow into” early retirement benefits as long as an 11 employee satisfies, or will be able to satisfy, the eligibility requirements prior to the 12 amendment or after an amendment to the plan takes effect. 13 Plaintiffs would be eligible for early retirement benefits (retire before age 65 14 without reducing their basic retirement benefit) provided in the Summary Plan 15 Description and Retirement Plan at issue, if they had met the Plan eligibility 16 requirements–primarily attaining a total of 80 when adding (i) their age, and (ii) the 17 number of years in which they participated in the plan and contributed 400 or more 18 working hours pre-amendment or before the critical date of August of 2009. 19 The PPA exempted the Defendants’ continued payment of early retirement 20 benefits already in “pay status” as of a date certain but not thereafter. 29 U.S.C. 21 §1085(e)(8)(A)(ii) (“exception for retirees”) and §1085 (i)(6) (“pay status” 22 definition). For example, a proper application approved and placed in pay status for 23 a “Rule of 80” pension prior to August, 2009, continues to be paid by Defendants. 24 That same application made in September, 2009, would be denied because the 25 benefit, although “earned by service,” was extinguished, as in Plaintiffs’ cases, 26 pursuant to the rehabilitation plan mandated by the PPA. 27 While both Plaintiffs had accrued significant points potentially leading to the 28 right to retire at age 55 without reduction of benefits, neither Plaintiff was in “pay ORDER - 9 1 status” before changes to the pension plan were made. “Adjustable benefits” are 2 defined in the PPA to include “benefits, right, and features under the plan, including 3 ... early retirement benefits not yet in pay status.”8 Plaintiffs, therefore, had an 4 expectancy that they would receive the supplemental benefit but not an absolute right 5 to collect under all circumstances and the timing of the rehabilitation plan. Although 6 Plaintiffs will suffer no economic loss with respect to their normal retirement 7 benefits, the elimination of early retirement benefits could reasonably be seen as 8 upsetting their expectation that they would be able to retire early with full benefits. 9 However, as the Court noted in Concrete Pipe, “. . . pension plans had long been 10 subject to federal regulation, and those who do business in the regulated field cannot 11 object if the legislative scheme is buttressed by subsequent amendments to achieve 12 the legislative end.” Concrete Pipe and Products of California, Inc. v. Construction 13 Laborers Pension Trust, 508 U.S. 602, 645-46 (1993) (internal quotations omitted), 14 citing Usery v. Turner Elkhorn Mining Co., 428 U.S. 1,15-16 (1976) (“legislation 15 readjusting rights and burdens is not unlawful solely because it upsets otherwise 16 settled expectations.”). 17 As for Plaintiffs’ claim that the PPA impinges on their fundamental right 18 to early retirement benefits under their Rule of 80 Plan, the Court finds early 19 retirement is not recognized as a “fundamental right” as the great weight of authority 20 suggests that even public employment is not a fundamental right, at least for purposes 21 of substantive due process. Massachusetts Board of Retirement v. Murgia, 427 U.S. 22 307, 96 S.Ct. 2562, 49 L.Ed.2d 520 (1976). The Court also finds that a challenge to 23 Section 202 of the PPA under the Equal Protection component of the Fifth 24 Amendment is subject to rational basis review, not a strict scrutiny review. Pension 25 Ben. Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729 (1984); U.S. Railroad Ret. 26 Bd. v. Fritz, 449 U.S. 166, 177 (1980). Because Section 202 of the PPA plainly 27 28 8 ERISA § 305(e)(8)(A)(iv), 29 U.S.C. § 1085(e)(8)(A)(iv). ORDER - 10 1 serves legitimate government purposes through means that are rationally related to 2 those purposes, Plaintiffs cannot meet the “extremely high” burden applicable to 3 rational basis review. Richardson v. City and County of Honolulu, 124 F.3d 1150, 4 1162 (9th Cir. 1997). It would appear that Congress acted rationally, in theory and 5 in fact, to protect and preserve Plaintiffs’ and others’ normal retirement benefits, and 6 to avoid the cost to the Pension Benefit Guaranty Corporation9 that would occur from 7 a defaulting pension plan. 8 III. CONCLUSION 9 The Court believes the result it has reached is proper for the reasons set forth 10 above and that it is consistent with the legislative goals of ERISA and the PPA, 11 statutes which are to be construed liberally to achieve those goals. FHA v. The 12 Darlington, Inc., 358 U.S. 84, 91 (1958) ("Those who do business in the regulated 13 field cannot object if the legislative scheme is buttressed by subsequent amendment 14 to achieve the legislative end."). The PPA, which ensures the long-term financial 15 stability of pension plans, required the Defendants to modify the Plan which was done 16 in accordance with the PPA. Under the terms of the amended Plan, Plaintiffs were 17 not entitled to early retirement benefits (an adjustable benefit) because they were not 18 in pay status. 19 /// 20 /// 21 22 9 The Pension Benefit Guaranty Corporation (“PBGC “) is a federal 23 corporation created under Title IV of ERISA whose purpose is to encourage the 24 continuation and maintenance of certain private pension plans and to provide for 25 payment of pension benefits under those plans. ERISA § 4002(a), 29 U.S.C. § 26 1302(a). At insolvency, the PBGC will provide financial assistance to the plan so 27 it can provide benefits at the guarantee level. ERISA § 4261(a), 29 U.S.C. § 28 1431(a). ORDER - 11 1 IT IS ORDERED: 2 1. Defendants’ Motion to Dismiss, ECF No. 45, filed January 28, 2014, is 3 4 GRANTED. Plaintiffs’ claims are dismissed with prejudice. 2. The District Court Executive is directed to: 5 (a) enter this order; 6 (b) enter judgment consistent with this order; and 7 (c) close this file. 8 DATED this 2nd day of May, 2014. 9 s/Lonny R. Suko _______________________________ LONNY R. SUKO Senior United States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ORDER - 12
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