BINS v EXXON, 9855662v2
U.S. 9th Circuit Court of Appeals
BINS v EXXON
9855662v2
ERNEST S. BINS,
Plaintiff-Appellant, No. 98-55662
v. D.C. No.
CV-97-01654-HLH
EXXON COMPANY U.S.A., a division
of Exxon Corp., OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Harry L. Hupp, District Judge, Presiding
Argued and Submitted En Banc
March 20, 2000--San Francisco, California
Filed August 10, 2000
Before: Procter Hug, Jr., Chief Judge, James R. Browning,
Mary M. Schroeder, Diarmuid F. O'Scannlain,
Ferdinand F. Fernandez, Andrew J. Kleinfeld,
Michael Daly Hawkins, A. Wallace Tashima,
M. Margaret McKeown, Kim McLane Wardlaw and
Raymond C. Fisher, Circuit Judges.
Opinion by Judge Fisher;
Partial Concurrence and Partial Dissent by Judge Fernandez
_________________________________________________________________
COUNSEL
Thomas G. Moukawsher, Moukawsher & Walsh, LLC,
Groton, Connecticut, for the plaintiff-appellant.
James Severson, Heather C. Beatty, Allyson W. Sonsenshine,
McCutchen, Doyle, Brown & Enersen, LLP, Los Angeles,
California, and David M. Rivet, Exxon Company, U.S.A.,
Houston, Texas, for the defendant-appellee.
Paul W. Crane, Jr., Paul, Hastings, Janofsky, Walker, San
Francisco, California, for amicus California Employment Law
Council
_________________________________________________________________
OPINION
FISHER, Circuit Judge:
We must determine in this case the point at which an
employer who administers a plan under the Employee Retire-
ment Income Security Act of 1974 ("ERISA"), 29 U.S.C.
S 1001, et seq., has a duty to inform plan participants that it
is considering a proposal to offer more generous retirement
incentive benefits.1 Appellant Ernest Bins worked for Exxon,
U.S.A. ("EUSA"), a division of Exxon Corporation
("Exxon"), for 15 years. In the months before he retired, Bins
unsuccessfully attempted to confirm rumors that EUSA was
considering offering eligible employees a lump-sum retire-
ment incentive under an existing welfare benefit plan covered
by ERISA. Two weeks after Bins retired, EUSA announced
precisely the sort of retirement incentive about which Bins
had inquired.
The nature and extent of an ERISA fiduciary's duties in
these circumstances is a matter of first impression in this Cir-
cuit. We recognize, therefore, that the district court did not
have any guidance from this Court when it made its ruling.
We have jurisdiction under 28 U.S.C. S 1291. We review de
novo a decision granting summary judgment, see Williams v.
Caterpillar, Inc., 944 F.2d 658, 661 (9th Cir. 1991), and we
reverse. We hold that when a plan participant inquires about
potential plan changes, an employer-fiduciary has a duty to
provide complete and truthful information about any such
changes then under serious consideration. In the absence of an
employee inquiry, however, the employer-fiduciary does not
have an affirmative duty to volunteer information about any
changes prior to their final adoption. We further hold that an
employer does not have a duty to follow up with an employee
if, subsequent to the employee's inquiry, the proposed
changes reach the serious consideration stage, unless the
employer agrees to do so.
FACTS2
Ernest Bins worked for EUSA as a Senior Mechanical
Technician on an offshore oil drilling rig. He became eligible
for retirement in the Summer of 1995 and decided to retire
effective January 1, 1996. In the Fall of 1995, Bins began
hearing rumors that, in addition to regular retirement benefits,
EUSA would offer a lump-sum retirement incentive under the
Special Program of Severance Allowances ("SPOSA"). The
SPOSA is a pre-existing ERISA welfare benefit plan available
on an as-needed basis that, once approved, would permit
EUSA to pay special severance benefits to induce employees
to retire early when EUSA decides to reduce its workforce.
Anxious to confirm the rumors, Bins asked everyone at
EUSA to whom he had access and who he expected would
have, or would be able to obtain, information about the likeli-
hood of a SPOSA offering. He asked his supervisors,
Mechanical Foreman Kelly Pease and Field Superintendent
Jerry Odom, who told him that they had heard the same
rumors but that they knew nothing about a SPOSA offering.
Bins also asked his assigned benefits counselor, Becky Pil-
grim, and a human resources advisor, Ray Julson. According
to Bins, he had been instructed that either of these two indi-
viduals was a proper company representative through whom
to direct questions to the company about employee benefits.
They both told him truthfully that they knew nothing about a
SPOSA offering.
Bins decided to postpone his retirement to February 1,
1996, in part because of rumors about the new SPOSA offer-
ing and in part because he wanted to avoid a penalty for early
withdrawal from his thrift account. In November 1995, Bins
attended a retirement seminar conducted by Lea Connor, an
Exxon attorney. During the seminar, Connor truthfully
answered another prospective retiree's question by stating that
she had no knowledge of a new SPOSA offering. At Bins'
retirement party on his last day of work, December 27, 1995,
Bins asked his supervisor's supervisor, Dave Lucas, whether
EUSA was going to offer SPOSA benefits. Lucas replied --
again, truthfully -- that he had no knowledge of such an
offering.
From December 27, 1995 until his retirement on February
1, 1996, Bins used accrued vacation time to supplement his
scheduled off-duty days and did not return to work. Bins
could have acted to change his retirement date at any time
prior to February 1, 1996. After December 27, however, he
made no further inquiries into the possibility of a SPOSA
offering, and no one told him about the likelihood of a change
in benefits.
In the Fall of 1995, EUSA had initiated an Organization
Effectiveness Study ("OES") Team to determine ways to opti-
mize the Production Department in which Bins was
employed. In November 1995, the OES Team recommended
a reorganization of the Production Department -- creating a
200-employee surplus -- and an accompanying SPOSA offer-
ing to induce early retirement of excess workers. After prepar-
ing several proposals for structuring the reorganization and
SPOSA, the OES Team submitted them to EUSA manage-
ment. On November 29, 1995, EUSA Vice-President J.H.
Peery reviewed the proposals. As manager of the Production
Department, Peery was authorized to implement the SPOSA
offering after obtaining final approval from Exxon. EUSA
Senior Vice-President M.E. Foster reviewed the proposals on
December 1, 1995, and EUSA President Ansel Condray first
reviewed the proposals on December 15, 1995.
The record before us does not reveal the exact date on
which EUSA first submitted the proposals to Exxon, but we
know that on January 11, 1996, Exxon Senior Vice-President
Harry Longwell favorably reviewed the reorganization pro-
posal. We also know that EUSA President Condray conducted
a final review of the reorganization and SPOSA proposals on
January 24, 1996 and, on the same day, gave his approval to
the Production Department to proceed with securing endorse-
ment of the reorganization and the SPOSA from Exxon. On
January 26, 1996, Exxon Senior Vice-President Robert Wil-
helm wrote a brief letter formally approving the proposed
reorganization. On January 30, 1996, EUSA Human
Resources Manager Asif Beg requested approval to imple-
ment the proposed SPOSA from Exxon Vice-President of
Human Resources, D.S. Sanders. Sanders approved the
SPOSA offering on February 2, 1996, and Beg received the
approval on February 5, 1996.
On February 13, 1996, less than two weeks after Bins
retired, EUSA publicly announced its reorganization plan and
the availability of SPOSA benefits. Bins filed suit, contending
EUSA had breached its duties as an ERISA fiduciary. Relying
on Fischer v. Philadelphia Electric Co., 96 F.3d 1533 (3d Cir.
1996) ("Fischer II"), Bins argued that, once EUSA began "se-
riously considering" a proposal to offer enhanced benefits
under the ERISA severance plan, it had a duty (1) to respond
accurately and straightforwardly to his questions and to
inform lower-level employees to whom he would turn with
questions; (2) to follow up and notify him if serious consider-
ation began after he made his inquiries; and (3) to volunteer
information to all potential retirees even in the absence of spe-
cific questions.
EUSA moved for summary judgment. The district court
applied Fischer II but, stressing the fact that EUSA could not
approve the SPOSA, focused solely on the issue of when
Exxon's senior management began serious consideration.
With this focus, the district court concluded that there was no
serious consideration of a proposal to offer SPOSA benefits
as of December 27, 1995, the date of Bins' last inquiry. The
district court held that serious consideration began on or about
January 26, 1996 -- the date Exxon Senior Vice-President
Wilhelm formally approved the proposed reorganization.
Although Bins had not yet retired as of January 26, the district
court concluded that, because Bins had not specifically
renewed his inquiry about SPOSA benefits, EUSA had no
affirmative duty to inform him that it was considering such a
proposal. Finding no breach of a fiduciary duty under ERISA,
the district court granted summary judgment for EUSA.
DISCUSSION
Congress enacted ERISA to protect participants and benefi-
ciaries of employee benefit plans without discouraging
employers from offering such plans. See Varity Corp. v.
Howe, 516 U.S. 489, 497 (1996). ERISA establishes "stan-
dards of conduct, responsibility, and obligation for fidu-
ciaries," and provides plan participants and beneficiaries with
"appropriate remedies . . . and ready access to the Federal
courts." ERISA S 2(b), 29 U.S.C. S 1001(b) (quoted in Varity,
516 U.S. at 513). In enacting ERISA, Congress painted with
a broad brush, expecting the federal courts to develop a "fed-
eral common law of rights and obligations" interpreting
ERISA's fiduciary standards. Varity, 516 U.S. at 497 (quoting
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110
(1989)) (internal quotation marks omitted).
A. ERISA's Fiduciary Duty of Loyalty
It is well established that a "company does not act in a fidu-
ciary capacity when deciding to amend or terminate a welfare
benefits plan." Curtiss-Wright Corp. v. Schoonejongen, 514
U.S. 73, 78 (1995) (quoting Adams v. Avondale Indus., Inc.,
905 F.2d 943, 947 (6th Cir. 1990)) (internal quotation marks
omitted). That is, an employer does not act in its fiduciary
capacity as a plan administrator when it makes a business
decision to amend a plan. See Cunha v. Ward Foods, Inc., 804
F.2d 1418, 1432-33 (9th Cir. 1986).3 Nevertheless, an
employer's obligations as an ERISA fiduciary are not sus-
pended while it considers a proposal to amend an existing
ERISA plan or to adopt a replacement plan. The core obliga-
tion of an ERISA fiduciary is to "discharge [its] duties with
respect to a plan solely in the interest of the participants and
beneficiaries." ERISA S 404(a)(1), 29 U.S.C. S 1104(a)(1);
see also Varity, 516 U.S. at 506.4 Looking to the common law
of trusts for guidance, the Supreme Court has held that com-
municating information about likely future plan benefits falls
within ERISA's statutory definition of a fiduciary act:
Conveying information about the likely future of
plan benefits, thereby permitting beneficiaries to
make an informed choice about continued participa-
tion, would seem to be an exercise of a power "ap-
propriate" to carrying out an important plan purpose.
After all, ERISA itself specifically requires adminis-
trators to give beneficiaries certain information about
the plan. See, e.g., ERISA SS 102, 104(b)(1), 105(a).
And administrators, as part of their administrative
responsibilities, frequently offer beneficiaries more
than the minimum information that the statute
requires--for example, answering beneficiaries'
questions about the meaning of the terms of a plan
so that those beneficiaries can more easily obtain the
plan's benefits. To offer beneficiaries detailed plan
information in order to help them decide whether to
remain with the plan is essentially the same kind of
plan-related activity.
Varity, 516 U.S. at 502-03 (citing RESTATEMENT (SECOND) OF
AGENCY, S 229(1) (1957)).
B. Serious Consideration
[1] Several of our sister circuits have adopted standards for
determining when the likelihood that an employer will amend
an ERISA plan to offer an enhanced retirement incentive or
severance program is sufficiently substantial to require an
employer who is also an ERISA fiduciary to communicate the
potential amendment accurately and straightforwardly to
inquiring plan participants. The leading case is Fischer II,
from the Third Circuit, which holds that an employer-
fiduciary must answer truthfully questions about the sub-
stance of a potential change in benefits if the employer is "se-
riously considering" such a proposal. 96 F.3d at 1538-40.
According to Fischer II, serious consideration takes place
when "(1) a specific proposal (2) is being discussed for pur-
poses of implementation (3) by senior management with the
authority to implement the change." Id. at 1539. Fischer II
treats these three parts not as isolated criteria but as related
elements that must be analyzed together in an "inherently
fact-specific" review to determine when the employer first
seriously considered implementing a proposed change in ben-
efits. Id.
[2] Thus, under the Fischer II test, a potential change in
retirement benefits becomes sufficiently likely -- and there-
fore becomes sufficiently material to employment decisions
of plan participants to trigger the fiduciary duty -- when the
employer-fiduciary seriously considers a proposal to change
those benefits. Most of our sister circuits that have considered
the question also have held "serious consideration" to be a
critical, or at least relevant, point in the materiality inquiry.
See, e.g., McAuley v. IBM Corp., Inc., 165 F.3d 1038, 1043
(6th Cir. 1999) (noting that " `[s]erious consideration' does
not occur until a company `focuses on a particular plan for a
particular purpose,' " and finding Fischer II's delineation of
specific factors "useful to consider" when determining the
issue of serious consideration (quoting Muse v. IBM Corp.,
103 F.3d 490, 494 (6th Cir. 1996)));5 Vartanian v. Monsanto
Co., 131 F.3d 264, 272 (1st Cir. 1997) (applying Fischer II,
but making explicit the requirement that the specific proposal
at issue under consideration would "affect a person in the
position of the plaintiff"); Hockett v. Sun Co., Inc. (R&M),
109 F.3d 1515, 1522-24 (10th Cir. 1997) (adopting Fischer II
without modification); Ballone v. Eastman Kodak Co., 109
F.3d 117, 122, 124 (2d Cir. 1997) (holding that "serious con-
sideration" is a factor relevant to the materiality inquiry but
not a "prerequisite").
We similarly believe that Fischer II's serious consideration
test is the proper tool for ensuring that an ERISA employer-
fiduciary discharges its "duties with respect to a plan solely
in the interest of the participants and beneficiaries," Varity,
516 U.S. at 506 (quoting 29 U.S.C. S 1104(a)) (internal quota-
tion marks omitted), without creating the unnecessary confu-
sion that could result from a lower standard of materiality, see
Fischer II, 96 F.3d at 1539. "Too low a standard could result
in an avalanche of notices and disclosures . . . . The warning
that a change in benefits was under serious consideration
would become meaningless if cried too often." Id. Until
review of a potential plan amendment reaches the serious con-
sideration stage, the prospects for its ultimate adoption are
sufficiently uncertain that it would be of questionable materi-
ality to the decision-making process of a plan participant con-
templating retirement. A rule requiring earlier disclosure risks
being overly burdensome and could easily become counter-
productive by discouraging employers from considering such
proposals in the first place.
Nonetheless, we also recognize that the Fischer II test
should not be applied so rigidly as to distract attention from
the core inquiry, which must always be whether the employer-
fiduciary has violated its fiduciary duty of loyalty to plan par-
ticipants by failing to disclose material information. We agree
with the First Circuit that the flexibility inherent in the
Fischer II test is essential. See Vartanian , 131 F.3d at 272.
"The ultimate question is whether `a composite picture of
serious consideration' has developed." Id. (quoting Fischer II,
96 F.3d at 1539). This flexibility is particularly necessary in
cases that present evidence of an employer's "deliberate
attempt to circumvent ERISA" by carefully patterning its con-
duct so as to evade one of the three factors.6 Id. Any formalis-
tic application of the test risks narrowing the fiduciary duty by
giving the benefit of the doubt to employer-fiduciaries who
comply with the words of the test but do not comply in spirit
with their fiduciary obligations under ERISA. See id. With
this framework in mind, we apply the serious consideration
test to the facts of this case.
1. "Specific Proposal"
[3] The primary function of this first element of the Fischer
II test is to "distinguish[ ] serious consideration from the ante-
cedent steps of gathering information, developing strategies,
and analyzing options." Fischer II, 96 F.3d at 1539-40.
Although the proposal need not "describe the plan in its final
form," it must be "sufficiently concrete to support consider-
ation by senior management for the purpose of implementa-
tion." Id. at 1540. The preliminary work done by the OES
Team, whose focus "was to gather information, evaluate
options, and develop strategies," Declaration of W.M. Snow,
EUSA Human Resources Operations Manager (hereinafter
"Snow Decl.") P 6, thus does not satisfy the above standard.
At the same time, however, Exxon's argument that the
SPOSA proposal did not become "specific" until January 26,
1996, when EUSA senior management asked Exxon senior
management for approval to implement the proposed SPOSA,
probably focuses too late in the process.
[4] Instead, we believe this first element may have been
met soon after the OES Team completed its preliminary work,
when it "prepared several proposals for structuring the reorga-
nization and the SPOSA," Snow Decl. P 5, and forwarded
these proposals to EUSA senior management.7 The record is
not fully developed on this point, however, and on remand the
district court should examine the content of those initial rec-
ommendations more closely before making a final determina-
tion. It may be that the proposals merely gave a rough,
abstract outline of the various ways a reorganization and
SPOSA offering could be structured, in which case they
would not be sufficiently concrete to satisfy this prong of the
test. On the other hand, it would be sufficient if the proposals
laid out the possible options in more detail, thus permitting
management to discuss them for the purpose of implementa-
tion.
[5] That the OES Team presented EUSA management with
several alternatives does not resolve the question against Bins,
because, as Fischer II recognized, "[a ] specific proposal can
contain several alternatives." 96 F.3d at 1540. Nor is it dispo-
sitive that the OES Team's proposal may have undergone
some changes before final approval and implementation, since
"the plan as finally implemented may differ somewhat from
the proposal." Id. Instead, the focus should be on whether,
from management's perspective, the proposal was sufficiently
concrete to permit a discussion about implementation. From
the perspective of an employee like Bins, what is material to
his retirement decision is that a SPOSA offering is likely; the
exact, final terms are less significant.
2. "Discussed for Purposes of Implementation"
[6] This element "recognizes that a corporate executive can
order an analysis of benefits alternatives or commission a
comparative study without seriously considering implement-
ing a change in benefits . . . . Consideration becomes serious
when the subject turns to the practicalities of implementa-
tion." Fischer II, 96 F.3d at 1540. The precise date when this
element of the test was satisfied is difficult to determine on
the record before us. On remand, the district court should
focus its inquiry on the content of the various SPOSA options
as initially formulated by the OES Team and on what the vari-
ous reviews by EUSA and Exxon senior management entailed
to determine when the subject turned to the practicalities of
implementation. As we discuss below, once the relevant
senior management began to address how the various propos-
als would be implemented within the Production Department,
this element would have been satisfied.
3. "By Senior Management with Authority to Implement
the Change"
[7] This final element is intended to ensure "that the analy-
sis of serious consideration focuses on the proper actors
within the corporate hierarchy . . . . Until senior management
addresses the issue, the company has not yet seriously consid-
ered a change." Fischer II, 96 F.3d at 1540. The relevant
senior managers are "those executives who possess the
authority to implement the proposed change." Id. However,
the Fischer II court cautioned that this "should not limit seri-
ous consideration to deliberations by a quorum of the Board
of Directors, typically the only corporate body that in a literal
sense has the power to implement changes in benefits pack-
ages." Id. Instead, the court held, "[i]t is sufficient for this fac-
tor that the plan be considered by those members of senior
management with responsibility for the benefits area of the
business, and who ultimately will make recommendations to
the Board regarding benefits operations." Id.
[8] This caution applies equally to a setting like the present
one, in which the proposal only affects a division within a
larger corporate structure and the corporation may function
similarly to a board of directors.8 The fact that Exxon Corpo-
ration may be the only corporate body that "in a literal sense"
can implement benefits changes by placing its imprimatur on
a proposal from EUSA management should not necessarily
push back the date of serious consideration in this case to the
date on which the SPOSA proposals landed on desks at
Exxon. If EUSA's relationship to Exxon resembles a corpora-
tion's relationship to its board of directors, then serious con-
sideration by EUSA's senior management would be sufficient
to satisfy the Fischer II test.
The American Law Institute's Principles of Corporate
Governance are instructive concerning the relationship
between a corporation and its board of directors, and their
respective functions and responsibilities. Insofar as relevant
here, the role of the board is to "oversee" or "monitor" the
conduct of the corporation's business and to approve major
corporate plans and actions. See American Law Inst., Princi-
ples of Corporate Governance: Analysis and Recommenda-
tions SS 3.01, 3.02(a)(1)-(2) (1994); id. S 3.02 cmt. a (stating
that a board can satisfy its duties "without either actively
managing or directing the management of the corporation, as
long as it oversees management and retains the decisive voice
on major corporate actions"); id. S 3.02 cmt. d ("In the pub-
licly held corporation, the management function is normally
vested in the principal senior executives."). A corporation
may be actually managed by its senior executives with a sub-
stantial degree of delegated authority and autonomy. The
management function, in turn, may be delegated to various
other senior executive officers, either formally or by course of
conduct. See id. S 3.01 & cmt. c (noting that such delegation
may come either from the board or from the principal senior
executives); see also id. SS 1.27, 1.30, 1.33 (defining "offi-
cer," "principal senior executive," and "senior executive,"
respectively). Accordingly, the corporation acts like a board
of directors when its general role is limited to one of oversight
over its divisions, even if the corporation "retains the decisive
voice on major [division] actions." In turn, a division acts like
a self-managed corporation when it has been delegated sub-
stantial autonomy over its own management decisions.
This distinction between oversight and management is criti-
cal in determining the level of autonomy enjoyed by a corpo-
rate division for purposes of Fischer II. It is difficult to draw
precise lines in this context because relationships within cor-
porate structures vary widely. Nonetheless, the focus should
be on whether, under the particular corporate structure, the
division is essentially self-managed whereby the corporation
allows (by policy or by practice) the senior division execu-
tives to develop and implement policies for the division as
part of their delegated authority, subject to oversight and input
from the corporation. The issue is not ultimate authority,
because, like the board of directors, the corporation can "re-
tain[ ] the decisive voice on major corporate actions." Id.
S 3.02 cmt. a. Instead, the issue is whether the proposed pol-
icy is within the scope of the divisional executives' delegated
management authority such that the corporation will most
likely approve their recommendations. If so, consideration by
those division-level senior executives is sufficient to satisfy
Fischer II.
[9] Although EUSA appears to be a highly autonomous
entity within the broader Exxon corporate structure, the
record on this issue is not fully developed. On remand, the
district court should determine whether EUSA was, in fact,
essentially self-managed. Specifically, the district court
should assess whether Exxon's role in EUSA's business oper-
ations was actively managerial or characterized more properly
as one of oversight. Relevant to this issue is whether Exxon
regularly required changes in the policies referred to it for
approval, and whether Exxon regularly initiated suggestions
for change in EUSA's personnel and other management poli-
cies once they had been put in place. A requirement of Exxon
approval prior to implementation of policies is not, in and of
itself, any more dispositive than was the need for approval by
the board of directors in Fischer II. Exxon's retention of some
degree of oversight does not necessarily detract from EUSA's
ability to make its own managerial decisions. If the fully
developed record reveals that EUSA was self-managed, then
the third prong of Fischer II would be met when the senior
management of EUSA began seriously considering the
SPOSA proposal.9
As the Fischer II court cogently stated, the goal of the seri-
ous consideration test is for "[e]mployees[to] learn of poten-
tial changes when the company's deliberations have reached
a level when an employee should reasonably factor the poten-
tial change into an employment decision." Id. at 1541. Conse-
quently, even though a self-managed corporate division may
not be authorized to implement changes without approval,
when senior management of such a division is seriously con-
sidering an offer of special severance benefits, an employee
such as Bins, who is considering retirement and has inquired
about possible changes, obviously would factor that possibil-
ity into his decision-making process.
The district court granted summary judgment in favor of
EUSA based on its conclusion that serious consideration did
not begin until January 26, 1996, when Exxon's senior man-
agement reviewed the proposals. Summary judgment on this
basis was improper because the district court did not examine
Exxon's corporate structure to determine the relationship
between Exxon and EUSA and the latter's level of autonomy.
If EUSA was a self-managed division, EUSA's senior man-
agement's serious consideration of the SPOSA offering would
trigger the fiduciary duty to respond truthfully to Bins' inqui-
ries and inform him of the status of the potential SPOSA
offering.
C. The Scope of a Fiduciary's Duties
Bins argues that beyond EUSA's duty to respond truthfully
to his inquiries, it had a duty both to notify him if serious con-
sideration began after he made his inquiries and to volunteer
information to all potential retirees even in the absence of spe-
cific questions. We hold that no such affirmative duties exist
except to the extent they are agreed to by an employer.
[10] The act of amending, or considering the amendment
of, a plan is beyond the power of a plan administrator and
thus is not an act of plan management or administration. See
Varity, 516 U.S. at 505. Consequently, an employer's serious
consideration of a change to a plan does not, in and of itself,
implicate ERISA's fiduciary duties. But when an employer
communicates with its employees about a plan, fiduciary
responsibilities come into play. See id. at 501 ("Conveying
information about the likely future of plan benefits, thereby
permitting beneficiaries to make an informed choice about
continued participation, would seem to be an exercise of a
power `appropriate' to carrying out an important plan pur-
pose."). If an employee makes an inquiry (or inquiries) about
prospective plan changes, the employer's fiduciary duty is to
respond completely and truthfully about the present state of
affairs -- that is, whether serious consideration has begun.
The employer's duty does not extend to employees who do
not inquire about potential plan changes, however. We hold
that, absent such an inquiry, an ERISA fiduciary does not
have an affirmative duty prior to final approval and general
dissemination of plan changes to volunteer information to
employees who have not specifically alerted the fiduciary to
the fact that such information is material to them. Cf. Pocchia
v. NYNEX Corp., 81 F.3d 275, 279 (2d Cir. 1996) ("While
NYNEX had a fiduciary duty not to make affirmative misrep-
resentations or omissions, it did not have a duty to disclose
proposed changes in the absence of inquiry by Pocchia.").10
A more difficult question concerns employees who inquire
and who are correctly told at that time that no serious consid-
eration has occurred: If the employer subsequently reaches the
serious consideration stage, does it have a duty to go back and
inform those employees who had previously inquired and who
the employer knows have not yet retired? The answer turns on
the precise content of the employee's inquiry.
[11] If an employee, in the course of inquiring about possi-
ble plan changes, asks to be kept abreast of any changes in the
status of a potential change and the employer provides assur-
ances to that effect, then the employer will have a fiduciary
duty to follow up with that employee. In such a situation, the
employer should know that silence on its part thereafter con-
veys an implicit message that no serious consideration has
occurred and that the employee will rely on that silence to his
or her detriment. Cf. Varity, 516 U.S. at 505 (noting that "plan
administrators often have, and commonly exercise, discretion-
ary authority to communicate with beneficiaries about the
future of plan benefits"); Bixler v. Central Pa. Teamsters
Health & Welfare Fund, 12 F.3d 1292, 1300 (3d Cir. 1993)
("Th[e] duty to inform . . . entails not only a negative duty not
to misinform, but also an affirmative duty to inform when the
trustee knows that silence might be harmful.").
We decline, however, to impose on employers a duty to fol-
low up an employee's inquiry in the absence of an assurance
from the employer that it will provide an update. Such a
requirement would extend an ERISA plan administrator's
fiduciary duty beyond conveying truthful information and any
discretionary duties it has assumed, and thus would be incon-
sistent with Varity. No other court has so extended a fidu-
ciary's duty to disclose. Contrary to Bins' suggestion, Eddy v.
Colonial Life Ins. Co., 919 F.2d 747 (D.C. Cir. 1990), does
not go so far. Eddy's broad dictum that"[a] fiduciary has a
duty not only to inform a beneficiary of new and relevant
information as it arises, but also to advise him of circum-
stances that threaten interests relevant to the[fiduciary] rela-
tionship," id. at 750 (emphasis added), refers to examples
where the employer's mere acquisition of information inde-
pendently gives rise to fiduciary obligations, such as when the
fiduciary has "knowledge of prejudicial acts by an employer
-- such as the failure of an employer to contribute to a fund
as required," id., or "when an ineligible person contributes to
a fund" and the fiduciary knows or learns of the ineligibility,
id. at 751. In contrast, an employer's arrival at the serious
consideration stage does not independently give rise to a fidu-
ciary obligation to volunteer information in the absence of an
inquiry.
[12] Accordingly, in the absence of a promise to update an
employee, an ERISA fiduciary's duty does not extend beyond
giving complete and accurate answers to the employee's ques-
tions. A contrary rule would invite a process whereby
employees would include boilerplate requests to be updated
whenever they made an inquiry. Such a rule would force upon
the employer a responsibility which it may be unwilling to
assume and could, consequently, discourage employers from
seriously considering otherwise beneficial plan changes. If, on
remand, Bins can provide evidence that any of the EUSA rep-
resentatives he asked about the potential SPOSA change
promised to let him know if anything changed, then, assuming
serious consideration occurred before his retirement decision
became irrevocable, that promise would be a basis for recov-
ery.
REVERSED and REMANDED for further proceedings
consistent with this opinion.
_________________________________________________________________
FERNANDEZ, Circuit Judge, with whom O'SCANNLAIN
and McKEOWN, Circuit Judges, join, concurring and dissent-
ing:
I agree with parts A and C1 of the majority opinion and
with part B to the extent that it holds that the proper test for
answering employee inquiries is the serious consideration test.2
However, I cannot agree with the gloss it puts on the test and
especially disagree with the gloss on the "senior manage-
ment" element of Fischer II, 96 F.3d at 1539, which in turn
induces it to return this case to the district court for further,
perhaps extensive and expensive, proceedings. That, itself,
would not be so bad, although it is drear enough. However,
it also portends ill for employers, who seek to know when
they must disclose plans which are only a-hatching at best.3
As Fischer II put it, the serious consideration test consists
of three elements: "(1) a specific proposal (2) is being dis-
cussed for purposes of implementation (3) by senior manage-
ment with the authority to implement the change. " Id. The
majority's discussion of parts (1) and (2) of the test is trou-
bling. It seems to suggest that when lower echelon employees
look at a mere mix of possible options submitted by their
underlings, that can be sufficient to satisfy the first two parts
of the test. See slip op. at 9776-9779. 4 But most troubling, and
my focus here, is part (3) of that formulation. See slip op.
9779-9782.
As Fischer II explained it, part (3) of the test was designed
4 That seems to reify a spirit lurking within the formulation, which may
tend to make Fischer II a mere ingredient in some sort of indeterminate
mix. See slip op. 9775-9776. That, surely, would give litigants and courts
more flexibility, but it would hardly help employers to plan their affairs.
"[to focus] on the proper actors within the corporate hierar-
chy." Id. at 1540. And by senior management Fischer II really
meant "senior." It noted that corporations,"employ individu-
als, including middle and upper-level management employ-
ees, to gather information and conduct reviews." Id. Clearly,
those were not the people intended. Certainly, Fischer II
meant to exclude anyone who did not "possess the authority
to implement the proposed change." Id. That would exclude
most employees, including some executives who might be
part of senior management. On the other hand, while it did not
mean to ascend as high as the board of directors itself, it did
mean to ascend to the heights of "senior management with
responsibility for the benefits area of the business, and who
ultimately will make recommendations to the Board regarding
benefits operations." Id.; see also Hockett v. Sun Co., Inc.,
109 F.3d 1515, 1524 (10th Cir. 1997). In other words, it was
considering the very highest level of corporate management,
but even further limited that to those high-level executives
with benefits responsibility. It referred to people who were
directly responsible to the board of directors of the company.
Those are the people whom the board is most likely to rely
heavily upon, and whose recommendations the board is least
likely to deviate from.
That test might be difficult enough to apply in some circum-
stances.5 I see no reason to make it immeasurably more diffi-
cult by asking ourselves questions like: If the board of
directors has delegated final decision-making authority to the
true senior managers of the company, does senior manage-
ment become a constructive board, while lower echelon
employees become constructive senior management? Once
we do that, we commit ourselves to an endless progression of
questions of that nature. Especially is that true if we resort to
puzzling over the test and begin asking ourselves in the
abstract what the clause "authority to implement " is meant to
accomplish, rather than seeing that phrase for what it is, viz,
a limitation of the class of senior managers rather than an
expansion to some class below the level of top management.
We judges can live with the uncertainty, but we really should
not have to do so. Companies must live with it, but they really
should not have to do so.
Nor is the difference between the approach of Fischer II
and the majority inconsequential. Here, for example, we know
that EUSA was a mere division of Exxon. It was not a subsid-
iary and did not have its own board of directors. The titles or
reviewing activities of the employees within that division
should be of no real import. None of them were the senior
managers of the company.6 We also know that the actual
senior managers of Exxon did not give serious consideration
to the SPOSA until January 26, 1996 at the earliest. 7 By that
time, it was too late for Bins because he never asked a ques-
tion after that date. True enough, EUSA officers had consid-
ered the change before that, but, again, they surely were not
people who had the authority to go forward with anything.
Just as surely, they were not the ones who were at the board-
reporting level of the company. Clearly, then, they were not
the ones to whom Fischer II referred. Again, I see no reason
to expand the class beyond and below that set forth in Fischer
II. The lofty position of the senior management class of exec-
utives serves to assure us that consideration of a plan has
reached a truly serious level in a way that little else could.
Nor will it do to begin ruminating about whether the EUSA
employees "resembled" senior management because, perhaps,
the real senior management not only "resembled " a board of
directors, but also acted as a mere overseer for a significantly
autonomous or self managed division, whatever that means.8
Of course, I recognize that common law adepts are able to
define anything at all into something else entirely. There is no
good reason to do so here, and once we start down that path,
I see no principled way to distinguish among divisions,
departments, or even far flung groups that operate pretty inde-
pendently on a day-to-day basis.9 More to the purpose, there
is not the slightest hint in the record that the Exxon corporate
officers were rubber stamps for EUSA.10 In fine, Fischer II
injects enough uncertainty into this area of the law, but some
uncertainty is inevitable when we are attempting to decide
just when a misrepresentation has been made to an inquiring
beneficiary of a plan. I see no reason to exacerbate the inevi-
table with the unnecessary; I see no reason to add this new
peril to the already parlous ERISA seas.
Thus, while I concur in the adoption of the serious consid-
eration test, I respectfully dissent from the glosses which the
majority puts on that test, and which, in turn, result in the
remand of this case.11 In fine, I would affirm the decision of
the district court.
_______________________________________________________________
FOOTNOTES
1 Throughout this opinion, references to "employer" or "employer-
fiduciary" assume an employer that is a plan administrator.
2 We recite the facts as developed in the record on the motion for sum-
mary judgment, without intending to restrict the district court's authority
to find otherwise at trial.
3 Of course, an employer may not amend an ERISA plan in a manner
that would interfere with vested rights under the plan. See Hughes Aircraft
Corp. v. Jacobson, 525 U.S. 432, 438 -41 (1999) (discussing ERISA's
vesting requirements); Lockheed Corp. v. Spink , 517 U.S. 882, 892 n.5
(1996). This case does not involve vested benefits.
4 ERISA S 404(a)(1) provides in pertinent part:
(a) Prudent man standard of care
(1) . . . a fiduciary shall discharge his duties with respect
to a plan solely in the interest of the participants and
beneficiaries and--
(A) for the exclusive purpose of:
(i) providing benefits to participants and their ben-
eficiaries; and
(ii) defraying reasonable expenses of administering
the plan;
(B) with the care, skill, prudence, and diligence under
the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with
such matters would use in the conduct of an enter-
prise of like character and with like aims[.]
29 U.S.C. S 1104(a)(1).
5 The Sixth Circuit originated the concept of "serious consideration" as
a trigger point for ERISA's fiduciary duty in Berlin v. Michigan Bell Tel.
Co., 858 F.2d 1154, 1163-64 (6th Cir. 1988).
6 We make no assumptions about EUSA's motives but note that it did
attempt to keep information about the potential SPOSA offering under
tight wraps. On January 24, 1996, while Exxon was reviewing the reorga-
nization proposal, EUSA Human Resources Operations Manager W.M.
"Butch" Snow sent members of the EUSA Human Resources Department
a confidential memorandum entitled "How to Respond to Questions
Regarding SPOSA" and an attachment entitled "How Questions Regard-
ing SPOSA Should Be Addressed/Legal Guidance/Organization Effective-
ness Study Implementation." The memorandum and attachment provided
a list of "acceptable responses" to questions from employees and their
supervisors about the possibility of a new SPOSA offering.
Human resources personnel were instructed to reply as follows in
response to employee inquiries: "The study is still under review. I don't
know of a SPOSA having been approved." The Snow memorandum
explained that if a supervisor asked whether he or she could discuss the
possibility of SPOSA benefits with an employee who intended to retire as
of February 1, human resources personnel should tell the supervisor not
to initiate any SPOSA-related discussion with employees. Even if a super-
visor knew the SPOSA offering had received final approval, supervisors
were supposed to respond to questions by saying"[a]n announcement is
scheduled for (insert portion of the month)." The memorandum explained
that, to prevent supervisors from learning about SPOSA approval, "it is
expected that any knowledge of SPOSA approval, if such approval is ever
given, will be tightly held." It instructed human resources personnel that
they should use the list of "acceptable responses " both to determine appro-
priate responses to questions and to advise local site managers and "natu-
ral leadership team members" about how to respond to SPOSA inquiries.
We express no opinion on the wisdom of limiting access to information
about a possible change in benefits. However, if an interested employee
inquires about a potential change after the serious consideration stage is
reached, it would not be a defense that supervisors were unaware of the
status and thus responded ignorantly but truthfully to the employee's
inquiry.
7 The record indicates that the SPOSA was a pre-existing plan that was
available on an as-needed basis, but subject to amendments and requiring
final authorization from Exxon.
8 Although we deal here with the relationship between a corporation and
its division, the following analysis would be equally applicable in the
parent/subsidiary context.
9 On this record, it appears that Peery, the EUSA Vice-President of the
Production Department, might be one of the relevant senior EUSA execu-
tives. He had overall responsibility for the management of the affected
department, and EUSA's counsel identified him as a senior manager with
the authority to carry out the SPOSA offering once it had been approved
by Exxon.
10 By our holding, we do not question the existence of other "affirma-
tive" disclosure duties of an employer-fiduciary under circumstances not
present here. See, e.g., Farr v. U.S. West Communications, Inc., 151 F.3d
908, 914-15 (9th Cir. 1998) (finding a breach of fiduciary duty when fidu-
ciary provided information regarding tax consequences of electing an
early retirement option, but left out known facts regarding possible
adverse tax consequences); Barker v. American Mobil Power Corp., 64
F.3d 1397, 1403 (9th Cir. 1995) (holding that an ERISA fiduciary has a
duty to investigate suspicions he has with respect to plan funding and
maintenance, and that failing to convey information concerning those sus-
picions when responding to participants' inquiries can be construed as an
affirmative misrepresentation); Acosta v. Pacific Enters., 950 F.2d 611,
619 (9th Cir. 1991) (holding that "an ERISA fiduciary has an affirmative
duty to inform beneficiaries of circumstances that threaten the funding of
benefits").
1 Without meaning to be unduly captious, I, however, must indicate that
nothing in this record suggests a determination that some special promiseto disclose information as it developed was made to Bins by any represen-
tative of the employer. I see no reason to remand on that basis. See slip
op. 9784 and 9785.
2 See Fischer v. Philadelphia Elec. Co.. 96 F.3d 1533 (3d Cir. 1996)
(Fischer II).
3 Fisher II itself is far from perfect, if employers of good will are to be
encouraged to undertake "the formation of employee benefit plans." Pilot
5 I recognize that there might, someday, be a case where an ill-disposed
company will manipulate its structure in order to give itself the ability to
make misrepresentations to its employees with apparent impunity. Should
that eventuate, I am certain that the courts will be able to deal with the
problem. Suffice it to say that any rule of law can be placed under pressure
by the ill disposed; that does not mean that we should make every stated
rule mushy. Cf. Vartanian v. Monsanto Co., 131 F.3d 264, 272 (1st Cir.
1997). In any event, there is no indication that any manipulation affecting
Bins occurred in this case.
6 That, of course, includes Peery, the EUSA Vice-President of the Pro-
duction Department. See slip op. 9781 n.9.
7 That might well be too early -- its earliness being unsupported in the
record -- because the record suggests a later date. But Exxon essentially
adopts that date and certainly does not argue otherwise. Thus, for purposes
of this appeal Exxon must be held to that. See Resorts Int'l, Inc. v. Lowen-
schuss (In re Lowenschuss), 67 F.3d 1394, 1402 (9th Cir. 1995); Doty v.
County of Lassen, 37 F.3d 540, 548 (9th Cir. 1994).
8 Perhaps it simply means that a board of directors puts great reliance
upon its chief executive officers, and senior management might have put
great reliance upon individuals at EUSA. If so, I still see no reason to
destabilize the test by reading it that way. Indeed, do we even dare say that
senior management is significantly independent and self governing vis-a-
vis the board of directors?
9 The majority does engage in a somewhat elaborate rumination upon the
ALI's explication of the allocation of power between boards of directors
and management. But that cannot conceal the fact that what the majority
is doing is turning senior management of a corporation into a quasi board
of directors, and lesser management into quasi senior management. The
discussion does spread a distractingly diaphanous cloak over that danger-
ous determination, but it is no less disturbing to those who wish to, or
must, see through that diaphragm and deal with the dragon beneath.
Again, legally and factually speaking "subsidiary " and "division" are as
different as "corporate entity" and "corporate employee," or, if you will,
chalk and cheese.
10 Neither A. Beg, the human resources manager of EUSA, nor W.M.
Snow, the human resources operations manager of EUSA, saw Exxon
management as a rubber stamp. Nor did they have authority to do anything
without the approval of that management and its authorization. Nothing in
the record is to the contrary, but we now send the case back to see if Bins
can develop something.
11 This would not, of course, foreclose potential relief in a situation
where a corporation itself has vested decision making for the benefit
change at issue in members of management below the most senior rank.
Because of that possibility, there may be circumstances where a trial is
necessary to determine whether a proposed change was under serious con-
sideration by an appropriate officer. Nor, as indicated in footnote 5, does
this preclude a claim that a company improperly invoked its corporate
structure as a fig leaf to avoid disclosure obligations. Again, the record
here demonstrates that this case simply does not fall into either category.