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Vaughn v. Bay Environmental Management

June 4, 2009

JERRY VAUGHN; THERESA TRAVERS, PLAINTIFFS-APPELLANTS,
v.
BAY ENVIRONMENTAL MANAGEMENT, INC.; PINA J. BARBIERI; CAESAR AND NUTI; DENNIS VARNI; FSC AMENDED SECURITIES CORPORATION; JERROLD N. WEINBERG, DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of California Martin J. Jenkins, District Judge, Presiding D.C. No. CV-03-05725-MJJ.

The opinion of the court was delivered by: B. Fletcher, Circuit Judge

FOR PUBLICATION

OPINION

Argued and Submitted May 12, 2008 -- San Francisco, California

Filed September 19, 2008; Amended June 4, 2009

Before: Betty B. Fletcher and Pamela Ann Rymer, Circuit Judges, and Kevin Thomas Duffy,*fn1 Senior District Judge.

This case requires us to consider whether a former employee who has received a full distribution of his or her account balance under a defined contribution pension plan has standing as a plan participant to file suit under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., to recover losses occasioned by a breach of fiduciary duty that allegedly reduced the amount of his or her benefits. We join the First, Third, Fourth, Sixth, Seventh, and Eleventh Circuits, and hold that these former employees have standing to bring their claims.*fn2 Accordingly, we vacate the district court order dismissing the action for lack of subject matter jurisdiction, and remand for further proceedings.

I.

Jerry Vaughn and Theresa Travers ("Vaughn") are former employees of Bay Environmental Management Inc. ("Bay Environmental") who participated in two types of ERISA-governed retirement plans offered by the company ("Plans"). The first, referred to as the "Pension Plan," was funded solely by the discretionary contributions of Bay Environmental. The second, known as the "Retirement Plan," consisted of both a profit-sharing component and a 401(k) component. Both Plans were individual account plans, also known as defined contribution plans.*fn3 All Plan investments were chosen by the Plan trustees and investment advisors except for the 401(k) component of the Retirement Plan, which was directed by the Plan participants.

In 2000 or early 2001, Republic Services, Inc. purchased Richmond Sanitary Services, Inc. ("RSS"), of which Bay Environmental was an affiliate. At around this same time, the Trustees of the Plans voted to terminate the Plans. On or about April 13, 2001, Bay Environmental notified its employees that the Plans would be terminated effective April 30, 2001. In August 2001, the Trustees transferred all non-participant-directed plan assets to money market funds. Subsequently, in the year 2002, Plan participants received a lump-sum distribution of the value of their individual accounts.

On December 18, 2003, Vaughn filed suit on behalf of himself and all similarly-situated individuals.*fn4 He named Bay Environmental and the Plans' Trustees as defendants, alleging that Defendants breached their fiduciary duties by investing the Plans' assets imprudently. Specifically, Vaughn alleged that Defendants knew or should have known that the purchase of Bay Environmental by RSS would likely result in the termination of the Plans and that Defendants should have transferred the non-participant-directed plan assets to money market funds sooner in light of the Plans' shortened investment horizon. Vaughn sought relief in the form of a declaration that Defendants had breached their fiduciary duties, a preliminary injunction prohibiting distribution of the individual Defendants' Plan accounts, and the establishment of a successor trust for benefits owed to the Plans, benefits to be paid by the Defendants.

On March 14, 2005, after the parties failed to mediate the dispute, Vaughn filed his First Amended Complaint, adding the Plans' investment advisors, FSC Corporation and Jerrold N. Weinberg ("FSC Defendants"), as defendants.*fn5 Vaughn also added a second claim for relief alleging that Bay Environmental further breached its fiduciary duties by failing to conduct an adequate investigation before selecting the investment advisors or to monitor the performance of the Plans' investments and investment advisors.

On July 22, 2005, the FSC Defendants filed a motion to dismiss for lack of subject matter jurisdiction arguing that Vaughn lacked statutory standing under ERISA. Specifically, they claimed that Vaughn failed to allege sufficient facts to bring him within ERISA's definition of "participant." See 29 U.S.C. § 1002(7) (defining "participant" as "any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer . . . or whose beneficiaries may become eligible to receive any such benefit").

The district court granted the FSC Defendants' motion to dismiss on September 26, 2005. The court concluded that Vaughn was not a participant because he had received a lump-sum distribution of his individual account balance and was therefore not entitled ...


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