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Leister v. Dovetail

October 23, 2008; as amended November 20, 2008


Appeals from the United States District Court for the Central District of Illinois. No. 05-2115-Harold A. Baker, Judge.

The opinion of the court was delivered by: Posner, Circuit Judge

ARGUED MAY 7, 2008

Before BAUER, POSNER, and WILLIAMS, Circuit Judges.

The plaintiff, Sandra Leister, and the Petersons (the individual defendants) were employed by a company that sells "employee assistance programs" to employers; the programs provide counseling for troubled employees. In 1997 the Petersons bought some of their employer's employee-assistance-program contracts and created the corporate defendant, Dovetail, of which the Petersons are the sole owners and officers. They hired Leister, a psychologist, to work for Dovetail, and the terms of employment included Dovetail's agreeing to deposit a specified portion of her salary in a 401(k) retirement account and to match a specified portion of these elective deferrals of compensation with its own contributions. The defendants complied with the agreement only for the first year of Leister's employment. After that they diverted corporate receipts that should have been contributed to her 401(k) account to their own pockets. They also failed, despite her repeated requests, to provide her with copies of the documents that defined her rights with regard to the retirement account.

In 2005 she sued Dovetail and the Petersons to recover the contributions that the defendants were obligated to make to her 401(k) account and to obtain statutory penalties for their failure to give her copies of the plan documents. She based the suit on various provisions of ERISA, the federal pension law. The district judge, after a bench trial, awarded her $82,741 for the defendants' failure to make the required deposits in her 401(k) account-a failure that the judge deemed a willful breach of the defendants' fiduciary duties, 29 U.S.C. § 1104-but refused, because of their precarious financial condition, to award her any statutory penalty for their failure to give her copies of the retirement-plan documents. At $110 a day, the maximum statutory penalty, 29 U.S.C. § 1132(c)(1); 29 C.F.R. § 2575.502c-1, Leister would be entitled to receive at least $200,000 in statutory penalties and maybe much more, because while the defendants have finally given her some of the plan documents they have not given her all of them. Her cross-appeal seeks an award of statutory penalties but does not specify an amount.

Dovetail was the plan's sponsor; the Petersons were, as mentioned, owners and officers of Dovetail; and Mrs. Peterson was the plan's administrator. The judge treated the defendants as a singularity by awarding relief against all three of them jointly and severally, since co-fiduciary liability is joint and several under ERISA. 29 U.S.C. § 1105(a); La Scala v. Scrufari, 479 F.3d 213, 220 (2d Cir. 2007); In re Masters Mates & Pilots Pension Plan, 957 F.2d 1020, 1023 (2d Cir. 1992); Donovan v. Robbins, 752 F.2d 1170 (7th Cir. 1985) (concurring opinion); cf. Mertens v. Hewitt Associates, 508 U.S. 248, 262-63 (1993).

The defendants' principal argument, mysteriously not mentioned by the district judge although they had made it to him, is that the claim for the contributions that the plan failed to make to Leister's 401(k) account is barred by the applicable statute of limitations.

Two statutes of limitations apply to suits under ERISA. One, 29 U.S.C. § 1113, provides that a plaintiff complaining about "a fiduciary's breach of any responsibility, duty, or obligation under" sections 1101 to 1114 has the shorter of six years from the date of the breach to file suit or (with an immaterial exception) three years "after the earliest date on which the plaintiff had actual knowledge of the breach." The other statute of limitations is borrowed from the most analogous state statute of limitations and is applicable, so far as bears on this case, to suits "to recover benefits due to [the plaintiff] under the terms of his plan." 29 U.S.C. § 1132(a)(1)(B). If this is the governing provision, the borrowed statute of limitations would be Illinois's 10-year statute of limitations for breach of a written contract. 735 ILCS 5/13-206.

Although the judge based his grant of relief on the defendants' having violated their fiduciary duties, Leister also claims to be entitled to relief under section 1132(a)(1)(B). She may need that alternative ground because she may need the longer statute of limitations applicable to it, as we shall see. In addition (as she seems not to realize, however) her cross-appeal, which seeks the tax benefits that she would have realized had the defendants made the contributions to her 401(k) account that the plan required, can succeed only if she is entitled to obtain lost benefits. The relief the judge ordered was pursuant to 29 U.S.C. § 1132(a)(2) and required the defendants to make restitution of their gain from the breach of fiduciary duty, see § 1109, and that gain did not include the tax benefits that Leister would have obtained. She can recover them only under section 1132(a)(1)(B), as part of the benefits that the ERISA plan entitled her to.

But there are obstacles to her claim to benefits that she must overcome. To begin with, an ERISA plan can be established only by a writing, 29 U.S.C. § 1102(a)(1); Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 83-84 (1995); Neuma, Inc. v. AMP, Inc., 259 F.3d 864, 872-73 (7th Cir. 2001), and anyway the 10-year borrowed Illinois statute of limitations is applicable only to suits on written contracts. The only writing in this case is a "Plan Adoption Agreement" made between Dovetail and a third-party provider of the 401(k) program, a bank that handled various financial details of the plan. The agreement, however, specifies the benefits, including the elective deferrals, to which participants are entitled. There is enough detail to satisfy the requirement that an ERISA plan be in writing. See Lumpkin v. Envirodyne Industries, Inc., 933 F.2d 449, 465-66 (7th Cir. 1991); Jenkins v. Local 705 Int'l Brotherhood of Teamsters Pension Plan, 713 F.2d 247, 252 (7th Cir. 1983); Williams v. Wright, 927 F.2d 1540, 1548 (11th Cir. 1991).

Another potential obstacle to the benefits claim is that the complaint does not name the plan itself, as distinct from Dovetail and the Petersons, as a defendant. Several cases say that only the plan (or what is the equivalent, the plan administrator named only in his or her official capacity, which wasn't done either) can be named as a defendant in a suit for benefits. E.g., Jass v. Prudential Health Care Plan, 88 F.3d 1482, 1490 (7th Cir. 1996); Graden v. Conexant Systems Inc., 496 F.3d 291, 301 (3d Cir. 2007); Lee v. Burkhart, 991 F.2d 1004, 1009 (2d Cir. 1993); Gelardi v. Pertec Computer Corp., 761 F.2d 1323, 1324 (9th Cir. 1985). Other courts think it enough if whoever controls the administration of the plan is named as defendant. E.g., Layes v. Mead Corp., 132 F.3d 1246, 1249 (8th Cir. 1998); Garren v. John Hancock Mutual Life Ins. Co., 114 F.3d 186, 187 (11th Cir. 1997); Daniel v. Eaton Corp., 839 F.2d 263, 266 (6th Cir. 1988). But there is less to the difference than meets the eye.

The cases in the first group rely on the language of 29 U.S.C. § 1132(d): "an employee benefit plan may sue or be sued under this title as an entity," and "any money judgment under this title against an employee benefit plan shall be enforceable only against the plan as an entity and shall not be enforceable against any other person unless liability against such person is established in his individual capacity under this subchapter." The first clause just allows plans to sue or be sued, and the second clause just specifies consequences if the plan is sued; neither seems to be limiting the class of defendants who may be sued. The benefits are an obligation of the plan, so the plan is the logical and normally the only proper defendant. But in cases such as this, in which the plan has never been unambiguously identified as a distinct entity, we have permitted the plaintiff to name as defendant whatever entity or entities, individual or corporate, control the plan, Riordan v. Commonwealth Edison Co., 128 F.3d 549, 551 (7th Cir. 1997), thus bridging the two groups of cases. In the present case, involving as it does a small new company of conspicuous informality with no designated plan entity, the company itself and its two principals were appropriate defendants to name in a suit to recover plan benefits.

Leister argues that Illinois's 10-year statute of limitations for breach of a written contract applies because all that she is suing for are the benefits that the plan entitled her to-the amount that should have been in her 401(k) account. Actually, there are also the statutory penalties that she is suing to obtain, but as to them no statute of limitations defense is pleaded, though it could have been. See Stone v. Travelers Corp., 58 F.3d 434, 439 (9th Cir. 1995); Groves v. Modified Retirement Plan for Hourly Paid Employees of Johns Manville Corp. & Subsidiaries, 803 F.2d 109, 117 (3d Cir. 1986); George Lee Flint, Jr., "ERISA: Fumbling the Limitations Period," 84 Neb. L. Rev. 313, 319-20 (2005). And remember that she seeks relief not only under the benefits provision but also for the defendants' violation of 29 U.S.C. § 1104, which requires an ERISA fiduciary to act in the sole interest of the plan's participants and beneficiaries. As the district judge found, the defendants failed to do this when they lined their pockets with money that the plan required to be placed in Leister's 401(k) account.

The statute of limitations applicable to a claim under section 1104 is, as we know, section 1113, and Leister discovered the initial breach of the defendants' fiduciary obligations in 1999, more than six years before she sued. It is true that there is no indication that she learned then that the defendants would never comply with the terms specified in the Adoption Agreement-that they had repudiated the agreement. Had she learned it then, claims for every subsequent failure to match would be barred by the three-year statute of limitations, e.g., Lewis v. City of Chicago, 528 F.3d 488, 492-93 (7th Cir. 2008); Daill v. Sheet Metal Workers' Local 73 Pension Fund, 100 F.3d 62, 66-67 (7th Cir. 1996); Miller v. Fortis Benefits Ins. Co., 475 F.3d 516, 521-23 (3d Cir. 2007), whereas if every default was pursuant to a fresh decision by the defendants not to comply with the agreement each such decision would be a fresh breach. Webb v. Indiana National Bank, 931 F.2d 434, 437 (7th Cir. 1991); Palmer v. Board of ...

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