Wake Forest Law Review

Weekly Roundup: 11/6-11/10
By: Tim Day & Jonathan Hilliard

Plotnick v. Computer Sciences Corp.
             In this civil case, the plaintiffs, former executives of Computer Sciences Corporation (“CSC”), filed suit against CSC, alleging they were denied benefits under their Deferred Compensation Plan for Key Executives after an amendment to the plan changed the applicable crediting rate.  The Fourth Circuit affirmed the district court’s grant of summary judgment for CSC, holding that the denial of benefits was proper under any standard of review.

By Sophia Blair

On January 27, 2016, the Fourth Circuit issued a published opinion in the civil case, Prince v. Sears Holdings Corp., affirming the district court’s dismissal of a life insurance claim for preemption reasons. Plaintiff Billy E. Prince (“Prince”) brought suit against his employer, Sears Holding Corp. (“Sears”), claiming that Sears improperly administered his life insurance benefits resulting in claims of misrepresentation, constructive fraud, and infliction of emotional distress. However, the Employee Retirement Income Security Act (“ERISA”) preempted Prince’s state law claims, and the Fourth Circuit affirmed the dismissal of his complaint.

Mrs. Prince’s Life Insurance Coverage Never Became Effective

In 2010, Prince submitted an application to Sears for a $150,000 life insurance plan for his wife, Judith Prince (“Mrs. Prince”). In 2011, Sears sent an acknowledgment letter to Prince and began withholding premiums from his income. Later that year, Mrs. Prince was diagnosed with liver cancer and Prince confirmed her insurance coverage on his online benefits summary.

However, the next year Prince received a letter from Sears informing him that the insurance coverage for Mrs. Prince never became effective because he had not submitted an “evidence of insurability questionnaire.” Unless Prince submitted the questionnaire, Mrs. Prince’s coverage would be terminated. Mrs. Prince died in 2014 and Prince brought this suit.

Sonoco Three-Prong Preemption Test

In order to determine whether ERISA § 502(a) preempted Prince’s state law claims, the Fourth Circuit applied the three-prong preemption test from Sonoco Prods. Co. v. Physicians Health Plan, Inc. 338 F.3d 366 (4th Cir. 2003). Pursuant to this test, the following elements must be met:

(1) The plaintiff must have standing under § 502(a) to pursue its claim; (2) its claim must “fall[] within the scope of an ERISA provision that it can enforce via § 502(a)”; and (3) the claims must not be capable of resolution “without an interpretation of the contract governed by federal law,” i.e., an ERISA-governed employee benefit plan.

Prince conceded the first element, so the Fourth Circuit took up consideration of the last two prongs of the test.

Did Prince Have an Enforceable Claim Under ERISA § 502(a)?

The Fourth Circuit determined that whether Prince had an ERISA-enforceable claim depended on the scope of his claims. Prince argued that he could escape preemption because his claim relied on Sears’ actions prior to the denial of benefits because the company deducted premiums from his income and reported that he had coverage. The Fourth Circuit disagreed and found that his claims were enforceable under ERISA because they challenged the administration of the ERISA plan. Prince could bring suit for denial of coverage only because ERISA required Sears to provide it.

Prince made the secondary argument that his claim fell outside of the scope of ERISA because he was suing for damages, not benefits. Again, the Fourth Circuit rejected his argument because of precedent in the 4th Circuit and from the Supreme Court stating the contrary. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987) (“The policy choices reflected in the inclusion of certain remedies and the exclusion of others under the federal scheme would be completely undermined if ERISA-plan participants and beneficiaries were free to obtain remedies under state law that Congress rejected in ERISA”);Wilmington Shipping Co. v. New England Life Ins. Co., 496 F.3d 326, 341 (4th Cir. 2007) ([P]reemptive scope is not diminished simply because a finding of preemption will leave a gap in the relief available to a plaintiff.”).

Can Prince’s Claims be Resolved Without Interpreting his ERISA-Governed Benefit Plan? 

The Third prong of the Sonoco preemption test required that Prince’s claim could be resolved without interpreting ERISA, in order to circumscribe preemption. Prince, again argued that he only challenged Sears’ action prior to the administration of the plan, but the Fourth Circuit found that distinction inconsequential. Resolving his claim required assessing Sears’ duty as an ERISA administrator, and Sears’ duty to Prince arose only from ERISA.

Likewise, Prince’s emotional distress claim required determining whether Sears’ administration of ERISA was so inept as to be outrageous. See Travis v. Alcon Labs., Inc., 504 S.E.2d 419, 425 (W. Va. 1998).


Because Prince’s claims met all three prongs of the Sonoco preemption test, the Fourth Circuit held ERISA completely preempted his state law claims, and affirmed the district court’s dismissal of them.


By Kayleigh Butterfield

On June 29, 2015, the Fourth Circuit issued a published decision in the civil case Trustees of the Plumbers & Pipefitters National Pension Fund v. Plumbing Services, Inc. The case involved the Plumbers and Pipefitters National Pension Fund (“Fund”) and its suit against Plumbing Services, Inc. (“PSI”) and PSI’s successor company (collectively “Defendants”) for failing to pay withdrawal liability pursuant to 29 U.S.C. § 1381. The Fourth Circuit affirmed the district court’s grant of summary judgment in favor of the Fund.

PSI’s Agreement to Contribute

On April 8, 1998, the sole shareholder of PSI, Kenneth Julian, agreed in writing that PSI would make contributions to the Fund “as provided for by the [labor] Agreements now existing and hereafter.” Pursuant to this agreement, PSI began making contributions to the Fund in 1998 and continued to do so until 2011. On March 10, 2011, Julian—writing again on behalf of PSI—stated that PSI wanted to “abolish its working relationship with” the union that maintained the Fund. PSI’s successor, PSI Mechanical, filed articles of incorporation shortly before PSI went out of business in the summer of 2011. Julian remained the shareholder of PSI Mechanical.

Over a year after the March 10 letter, the Fund notified Julian that PSI had incurred withdrawal liability of $188,685 because the company was continuing the type of work that previously obligated it to contribute. PSI refused to pay and instead formally objected and sought review of the withdrawal liability. The Fund ultimately rejected PSI’s objections and demanded payment. Defendants did not pay, and failed to demand arbitration.

Statutory Framework

The issue of withdrawal liability stems from Congress’s enactment of the Employment Retirement Income Security Act (“ERISA”), which was meant to promote and stabilize employee benefit plans in private industries. In 1980, Congress expanded that goal by passing the Multiemployer Pension Plan Amendments Act (“MPPAA”), which established withdrawal liability for building and construction employers who (1) cease to have an obligation to contribute and (2) continue to perform the same type of work for which contributions were previously required in the jurisdiction of the collective bargaining agreement.

If an employer objects to an imposition of withdrawal liability, the plan sponsor must review the matter and notify the employer of the outcome and basis for its decision. If the employer still disagrees with the response, it must demand arbitration within 60 days after the sponsor’s notification, or 120 days after the employer’s initial request for review. Without a demand for arbitration, the employer is considered to have waived review of the withdrawal liability determination.

No Issue with Jurisdiction, Venue, or Merit Findings

The Fourth Circuit first addressed Defendants’ motions to dismiss for lack of personal jurisdiction and to transfer venue. The standard of review for jurisdiction is de novo, while the Court reviews venue transfer under abuse of discretion. The Court quickly disposed of the personal jurisdiction issue, noting that ERISA is a nationwide program that allows for a nationwide service of process. Thus, Defendants argument that it lacked “minimum contacts” with the chosen jurisdiction was moot. The Court went on to examine the four factors considered for a venue transfer, and found that (1) the weight accorded to plaintiff’s choice of venue was strong; (2) witness convenience and access was irrelevant given the lack of witness testimony needed for this case; (3) Defendant’s were not substantially inconvenienced; and (4) the interest of justice favored keeping the original venue.

Next, the Fourth Circuit addressed Defendant’s argument that the district court lacked subject matter jurisdiction because the action for withdrawal liability should have been brought under the National Labor Relations Act as opposed to ERISA. The Court explained that because Section 1145 of ERISA explicitly requires contractually obligated employers to contribute to a retirement fund in accordance with the operative collective bargaining agreement, it creates a federal right of action for collecting delinquent contributions as well as overdue withdrawal liability. Thus, the district court had subject matter jurisdiction over the Fund’s claim.

Finally, the Fourth Circuit reviewed de novo the district court’s grant of summary judgment on the merits. The Court noted that the Fund met its initial burden of providing sufficient evidence for its motion by providing an affidavit, correspondence, admissions from PSI, and a number of other documents. The Defendants failed to then provide evidence showing that there was a genuine issue for trial. Defendants did not dispute that they never demanded arbitration. Rather, they argued that PSI was not an employer subject to the arbitration requirement because Julian’s letter was not sufficient to bind PSI to future contributions.

The Fourth Circuit disagreed, stating that the text of Julian’s letter of assent clearly bound PSI to successor agreements under federal law. The Court noted that PSI’s conduct—decision to sign the letter, and contributing to the Fund for 13 years prior to withdrawing—also supported its obligations to contribute. Further, because PSI’s successor had the same shareholder and performed the same type of work, it was considered the same employer under ERISA. The Fourth Circuit concluded that Defendants were therefore one employer subject to the arbitration requirement, and, since they failed to demand arbitration, summary judgment in favor of the Fund should be upheld.


For the foregoing reasons, the Fourth Circuit affirmed the district court’s grant of summary judgment for the Fund.


By Paige Topper

On June 8, 2015, in the civil case of Pender v. Bank of America Corp., a published opinion, the Fourth Circuit reversed the district court’s dismissal of the case for lack of standing. The Fourth Circuit found that William Pender and David McCorkle (“Plaintiffs”) had both statutory and Article III standing for their ERISA violation claim against NationsBank (“Bank”).

NationsBank Lined Its Own Pockets

In 1998, the Bank amended its contribution plan (“401(k) Plan”) to allow eligible participants a one-time opportunity to transfer their account balances to the Bank’s benefit plan (“Pension Plan”). Unknown to the participants the two plans operated differently in key ways. The 401(k) Plan accounts reflected the actual gains and losses of the participants’ investment options, meaning the money that 401(k) Plan participants directed to be invested in particular investment options was in fact being invested in those specified options. On the other hand, Pension Plan accounts reflected the hypothetical gains and losses of the participants’ investment options. Moreover, Pension Plan participants’ selected investment options were disregarded because the Bank invested the Pension Plan assets at its discretion. This discretion enabled the Bank to invest in options with a higher rate of return and retain the extra money in each Pension Plan participants’ accounts.

In 2000, the IRS opened an audit of the Bank’s plans and concluded that the transfers violated the Internal Revenue Code and the Treasury Regulations. As a result of the audit, the Bank and IRS entered into a closing agreement, in which the Bank paid a $10 million fine and returned the Pension Plan accounts to a new special-purpose 401(k) plan.

Plaintiffs were participants who elected to transfer their account balances into the Pension Plan. In 2004, Plaintiffs filed a complaint against the Bank in the District Court for the Southern District of Illinois alleging that the Bank violated ERISA § 204(g)(1) by decreasing the participants’ accrued benefit through the Pension Plan. The case was transferred to the Western District of North Carolina, where both parties moved for summary judgment. The District Court granted the Bank’s motion and dismissed the case on the basis that Plaintiffs lacked standing.

Plaintiffs Had Statutory Standing Under ERISA § 502(a)(3)

Under § 502(a)(3), a plaintiff may obtain “appropriate equitable relief” for any act or practice, which violates an ERISA provision. Here, the Fourth Circuit asked (1) did the transfers violate an ERISA provision and (2) does the relief Plaintiffs seek constitute “appropriate equitable relief?”

The Fourth Circuit concluded that the transfers violated ERISA § 204(g)(1), which provides that a plan amendment may not decrease a participant’s accrued benefit. The Fourth Circuit explained that a contribution plan’s separate account feature, which allots for contributions and actual earnings and losses with the risk of investment allocated to the participant, constitutes an accrued benefit that may not be decreased. The Pension Plan decreased this accrued benefit because there was no guarantee that the Bank’s gamble in other investment options would return at least the same amount as the investment options selected by each participant.

Furthermore, Plaintiffs sought appropriate equitable relief. Plaintiffs asked for the profit the Bank made using their assets (also known as “accounting for profits”). The Supreme Court has noted that an accounting for profits is an equitable remedy. Thus, the Fourth Circuit found Plaintiffs equitable relief appropriate in this case.

Plaintiffs Had Article III Standing

The three requirements for Article III standing are an injury in fact, causation, and redressability. The Fourth Circuit dismissed the Bank’s argument that Plaintiffs did not have standing because they had not suffered a financial loss. The injury-in-fact requirement is not limited to financial losses. The Fourth Circuit indicated that an injury refers to the invasion of a “legally protected interest.” Here, Plaintiffs suffered an individual loss, the difference between the profit the Bank earned from investing their assets and the amount the Bank paid to them.

The Fourth Circuit was unpersuaded by the Bank’s argument that the closing agreement between the IRS and the Bank mooted Plaintiffs’ claim. While the closing agreement restored the separate account feature to Plaintiffs and subjected the Bank to a fine, it did not force the Bank to give back its profit from the transfers. As a result, Plaintiffs still had a claim to relief.

Plaintiffs’ Claim was Not Barred by the Statute of Limitations

Since ERISA does not provide a statute of limitations, the Fourth Circuit applied the most analogous state-law statute of limitation: imposition of a constructive trust. Both North Carolina and Illinois recognize the remedy of a constructive trust. The statute of limitations is five years in Illinois and ten years in North Carolina.

Under the choice-of-law rules, the Fourth Circuit found that the Seventh Circuit’s choice-of-law rules would apply. The Seventh Circuit looks to the forum state (Illinois) as the starting point unless another state has a significant connection to the parties and the transaction and is more compatible with the federal policies underlying the federal cause of action. Due to this exception, the Fourth Circuit determined that North Carolina’s ten-year statute of limitations would apply. The decision to permit the transfers of the 401(k) Plan assets took place in North Carolina and all relevant witnesses resided in North Carolina. In addition, North Carolina’s longer limitations period advanced ERISA’s core policy to protect the interests of participants in employee benefit plans by providing for appropriate remedies, sanctions, and ready access to Federal Courts. Plaintiffs filed suit well within the statute of limitations (in six years) and thus were not time-barred by the applicable ten-year limitations period.

Fourth Circuit Reversed District Court’s Decision that Plaintiffs’ Lacked Standing

The Fourth Circuit held that Plaintiffs had both statutory and Article III standing for their ERISA violation claim. Furthermore, the Plaintiffs’ were not barred from bringing their claim due to the limitations period. Thus, the Fourth Circuit reversed the District Court’s grant of summary judgment for the Bank, vacated the portion of the District Court’s order denying Plaintiffs’ motion for summary judgment on lack of standing, and remanded for further proceedings.