15-3602-cv - Foot Locker Pension Class Actionfootlockerpensionclassaction.com/Foot Locker...

15-3602-cv

United States Court of Appeals for the

Second Circuit

GEOFFREY OSBERG, on behalf of himself and on behalf of all others similarly situated,

Plaintiff-Appellee,

– v. –

FOOT LOCKER, INC., FOOT LOCKER RETIREMENT PLAN,

Defendants-Appellants.

–––––––––––––––––––––––––––––– ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

REPLY BRIEF FOR DEFENDANTS-APPELLANTS

JOHN E. ROBERTS PROSKAUER ROSE LLP One International Place Boston, Massachusetts 02110 (617) 526-9600

AMIR C. TAYRANI GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, NW Washington, DC 20036 (202) 955-8500

MYRON D. RUMELD MARK D. HARRIS PROSKAUER ROSE LLP Eleven Times Square New York, New York 10036 (212) 969-3000 ROBERT W. RACHAL PROSKAUER ROSE LLP 650 Poydras Street, Suite 1800 New Orleans, Louisiana 70130 (504) 310-4088

Attorneys for Defendants-Appellants

Case 15-3602, Document 80, 05/31/2016, 1783077, Page1 of 34

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ................................................................................... iii

PRELIMINARY STATEMENT ............................................................................... 1

ARGUMENT ............................................................................................................. 3

I. THE SPD CLAIMS OF MANY CLASS MEMBERS WERE UNTIMELY. ................................................................................................... 3

A. Class Members Were On Inquiry Notice When They Received Lump-Sum Payments That Exceeded Their Account Balances. .......... 4

B. Additionally, Many Class Members Received Individualized Communications That Triggered Inquiry Notice. ............................... 11

C. The Class Cannot Evade The Duty To Inquire By Speculating About What Would Have Happened Had An Inquiry Been Made. ................................................................................................... 13

D. An SPD Claim Has A Three-Year Statute Of Limitations. ................ 14

II. THE DISTRICT COURT’S REMEDY GIVES PARTICIPANTS WHO EXPERIENCED LITTLE OR NO WEAR-AWAY AN UNDESERVED WINDFALL. ...................................................................... 15

A. The Enhancement Must Be Applied Before The Adjustment For Wear-away. .......................................................................................... 15

B. The District Court Erred In Resetting The Initial Account Balances. .............................................................................................. 19

III. THE DISTRICT COURT ERRED BY FINDING CLASS-WIDE LIABILITY ON THE FIDUCIARY-BREACH CLAIM. ............................ 21

A. Overturning The Fiduciary-Breach Ruling Will Limit The Size Of The Class. ....................................................................................... 21

B. The District Court’s Finding Of A Class-Wide Fiduciary Breach Must Be Overturned For Want Of Evidence Of Class-Wide Detrimental Reliance. ................................................................ 22


ii

C. Alternatively, The District Court Should Have Dismissed As Time-barred The Fiduciary-Breach Claims Of Participants Who Left Foot Locker Before 2001. ............................................................ 24

IV. THE EVIDENCE DOES NOT SUPPORT A FINDING OF CLASS-WIDE MISUNDERSTANDING. ................................................................. 26

CONCLUSION ........................................................................................................ 27


iii

TABLE OF AUTHORITIES

Page(s)

CASES

Amara v. CIGNA Corp., 534 F. Supp. 2d 288 (D. Conn. 2008) ............................................................. 6, 26

Amara v. CIGNA Corp., 775 F.3d 510 (2d Cir. 2014) ............................................................................... 26

Boos v. Runyon, 201 F.3d 178 (2d Cir. 2000) ............................................................................... 14

Caputo v. Pfizer, Inc., 267 F.3d 181 (2d Cir. 2001) ......................................................................... 24, 25

CIGNA Corp. v. Amara, 563 U.S. 421 (2011) ............................................................................................ 14

Corcoran v. N.Y. Power Auth., 202 F.3d 530 (2d Cir. 1999) ........................................................................... 9, 13

Freschi v. Grand Coal Venture, 767 F.2d 1041 (2d Cir. 1985) ............................................................................. 13

Glaziers & Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Sec., Inc., 93 F.3d 1171 (3d Cir. 1996) ............................................................................... 23

Kenney v. State St. Corp., No. 09-cv-10750, 2011 WL 4344452 (D. Mass. Sept. 15, 2011) ...................... 23

Kifafi v. Hilton Hotels Retirement Plan, 701 F.3d 718 (D.C. Cir. 2012) .............................................................................. 6

McLaughlin v. Am. Tobacco Co., 522 F.3d 215 (2d Cir. 2008) ............................................................................... 10

Menominee Indian Tribe of Wisc. v. United States, 136 S. Ct. 750 (2016) .......................................................................................... 14


iv

Myers v. Hertz Corp., 624 F.3d 537 (2d Cir. 2010) ............................................................................... 10

Novella v. Westchester Cnty., 661 F.3d 128 (2d Cir. 2011) ........................................................................... 4, 12

Orr v. Bank of Am., 285 F.3d 764 (9th Cir. 2002) ................................................................................ 4

Rellou v. Dir. of Human Res., 439 F. App’x 21 (2d Cir. 2011) .......................................................................... 23

S.M. v. Oxford Health Plans (N.Y.), Inc., 94 F. Supp. 3d 481 (S.D.N.Y. 2015) .................................................................. 23

Thompson v. Ret. Plan for Emps. of S.C. Johnson & Son, Inc., 651 F.3d 600 (7th Cir. 2011) ............................................................................ 5, 6

Young v. Verizon’s Bell Atl. Cash Balance Plan, 615 F.3d 808 (7th Cir. 2010) ................................................................................ 6

STATUTES

26 U.S.C. § 411(a)(7)(A)(i).......................................................................................8

29 U.S.C. § 1055(g)(3)(B)(i)-(ii) ............................................................................. 20

29 U.S.C. § 1083(h)(3)(A) ....................................................................................... 20


PRELIMINARY STATEMENT

The Class spends much of its brief reciting the district court’s factual

findings as if it were retrying its liability case. In reality, many of the Class’s

factual assertions woefully mischaracterize the trial record. But more important,

they are irrelevant. Foot Locker is not contesting that it is liable. This appeal

concerns only whether the district court erred as a legal matter by awarding a

sweeping form of reformation relief to 16,000 Class members, notwithstanding

that: (1) the claims of many Class members are time-barred; (2) the relief ordered

exceeds the harm found; (3) there was no class-wide misunderstanding, which is a

prerequisite to class-wide reformation relief; and (4) there was no class-wide

detrimental reliance, which is an element of the fiduciary-breach claim.

With respect to the statute of limitations, the Class and the district court

conflate the issue of the clarity of Plan communications, which is an element of

liability, with inquiry notice, which determines when a claim accrues. Foot Locker

is not challenging the district court’s finding that its Plan communications

insufficiently warned participants about wear-away. But that does not mean that

the Class members never had reason to suspect that wear-away might have

occurred. Participants who later received either a lump sum greater than their

account balance or personalized communications from Foot Locker had sufficient

information to trigger a duty to inquire into whether they might have been injured.


2

The Class’s assertion that the unclear Plan communications that gave rise to

liability necessarily prevented participants from being on inquiry notice translates

into perpetually timely ERISA disclosure claims.

The Class similarly confuses issues when it defends the district court’s

ruling with respect to relief. Since the only misunderstanding found by the district

court concerned wear-away, the relief cannot exceed what is necessary to eliminate

wear-away. Yet the Class defends the district court’s far more extensive rewriting

of the Plan, which would award many Class members a windfall that vastly

exceeds their injury. For example, under the district court’s reformation remedy, a

participant who quit Foot Locker just days after the cash-balance conversion would

be entitled to collect tens of thousands of dollars in extra benefits. Such a result

flies in the face of equity.

With respect to class-wide misunderstanding, the district court was wrong to

rely on this Court’s decision in Amara v. CIGNA Corp. to conclude that all 16,000

Class members shared the same misimpression of Foot Locker’s Plan. Unlike in

Amara, the Class members here received individualized communications

containing different information about the Plan and their benefits. Those

individualized communications preclude a broad conclusion that every Class

member had the same misunderstanding of the Plan.


3

Finally, even if there were a class-wide misunderstanding, there was no

class-wide detrimental reliance, which is necessary to sustain the Class’s fiduciary-

breach claim. Contrary to the Class’s contention, the Supreme Court’s Amara

decision did not sub silentio overrule a long line of cases from this Circuit and

others holding that detrimental reliance is an element of an ERISA fiduciary-

breach disclosure claim. Indeed, Amara did not even involve a fiduciary-breach

claim, and the Court said nothing at all about liability, but rather discussed only the

elements of reformation relief.

ARGUMENT

I. THE SPD CLAIMS OF MANY CLASS MEMBERS WERE UNTIMELY.

The Class argues that every Foot Locker employee who received the

company’s SPD in 1996—including thousands of Class members who cashed out

by 1997—could bring a timely SPD claim in 2007. In effect, the Class believes

that if an SPD is sufficiently unclear to give rise to a § 102 violation, then the

statute will never run because no participant could recognize that he has a claim.

As Foot Locker explained in its opening brief, that position flies in the face of

precedent from this Circuit and others rejecting the idea of perpetually timely

ERISA claims.1

1 The arguments in this section apply with equal force to the Class’s fiduciary-breach claim. See, e.g., U.S. Chamber of Commerce Br. 20-27.


4

A. Class Members Were On Inquiry Notice When They Received Lump-Sum Payments That Exceeded Their Account Balances.

Under controlling precedent from this Court, the claims of Class members

who cashed out for more than their account balances accrued when they received

their lump sums.2 In Novella v. Westchester County, this Court held that the statute

of limitations for an ERISA miscalculation claim begins to run “when there is

enough information available to the pensioner to assure that he knows or

reasonably should know of the miscalculation.” 661 F.3d 128, 147 (2d Cir. 2011).

In explaining when a participant “reasonably should know” of a miscalculation, the

Court explained that when a participant receives a benefit payment along with an

account statement showing that the payment differs from the amount prescribed by

the plan’s formula, he is on notice that he may have been underpaid. Id. at 148.

That rationale controls the outcome here. Thousands of Class members

cashed out of Foot Locker’s Plan and received lump sums along with statements

showing that those lump sums exceeded their account balances. 3 If—as the

district court found (SPA73)—Class members were all laboring under the

2 Contrary to the Class’s contention (Opp. 32-33), the district court’s statute-of-limitations ruling is a legal determination subject to de novo review. See Novella v. Westchester Cnty., 661 F.3d 128, 143 (2d Cir. 2011); Orr v. Bank of Am., 285 F.3d 764, 779-80 (9th Cir. 2002).

3 Contrary to the Class’s assertion, the lump-sum payments were not “slightly above” their account balances. (Opp. 42.) Many were tens of thousands of dollars higher. (A1351 ¶ 16; A1354 ¶ 27; A3146; see also A1758 at 486:11-487:21.)


5

misconception that their account balance equaled their previously earned

retirement benefit plus additional credits, then this discrepancy should have alerted

them that their understanding was inaccurate.4

The Seventh Circuit reached a similar conclusion in Thompson v. Retirement

Plan for Employees of S.C. Johnson & Son, Inc., which held that participants were

on notice of their ERISA claims when they received a benefit payment that,

unbeknownst to them, did not contain certain additional payments to which they

were entitled under federal law. (See Opening Br. 28-30.) The participants in S.C.

Johnson argued that they were not sufficiently steeped in ERISA to understand that

mandated benefits had been withheld. 651 F.3d 600, 606 (7th Cir. 2011). The

Seventh Circuit squarely rejected that position because when the participants

received their lump-sum payments, they had all of the information necessary to

figure out that they had been shortchanged—even if they needed to understand

“obscure” concepts of ERISA law. Id. at 606-07 & n.8.

The Class argues that S.C. Johnson applies only in cases where an SPD is

“accurate,” not where it contains “hidden facts.” (Opp. 47.) But S.C. Johnson was

as much a case of “hidden facts” as this one. The SPD in that case omitted the

4 Similarly, participants who received an annuity that was exactly equal to the annuity to which they were already entitled under the prior Plan were on notice that their previous understanding of an ever-increasing benefit must have been mistaken. (See Opening Br. 28.)


6

“hidden fact” that participants would not receive an additional amount required by

federal law. 651 F.3d at 605. The same is true here: The SPD accurately stated

how the initial account balance was calculated, how subsequent credits were added

to that balance, and that a participant’s accrued benefit would be the greater of his

pre-1996 accrued benefit or the accrued benefit generated by the cash-balance

Plan, but left out the “hidden fact” that participants might experience wear-away.

(A2156.)5

The Class offers other arguments to blunt the impact of Novella and S.C.

Johnson. 6 None succeeds.

5 The Class argues that Young v. Verizon’s Bell Atlantic Cash Balance Plan, 615 F.3d 808 (7th Cir. 2010), is more applicable here than S.C. Johnson. (See Opp. 47-48.) But S.C. Johnson itself limited Young to its facts. In Young, the participant’s claim resulted from a scrivener’s error in the plan document, and thus her receipt of a benefit that comported with the one intended could not reasonably have alerted her to her claim. See S.C. Johnson, 651 F.3d at 607. There was no scrivener’s error here, and Young is therefore inapposite.

Similarly, the Class’s reliance on Kifafi v. Hilton Hotels Retirement Plan is misplaced. 701 F.3d 718 (D.C. Cir. 2012) (cited in Opp. 46). Kifafi explicitly recognized that “[w]here the miscalculated benefits comprise a single lump-sum payment, it might make sense to hold plan participants responsible for their failure to notice the miscalculation.” Id. at 729. Moreover, in Kifafi (unlike here), participants did not receive benefit payments that diverged from their cash-account balances.

6 The Class also incorrectly asserts that Amara rejected a statute-of-limitations argument similar to the one raised by Foot Locker. (Opp. 40-41.) The portion of the Amara decision cited by the Class does not discuss the statute of limitations. (Id. (quoting Amara v. CIGNA Corp., 534 F. Supp. 2d 288, 349 (D. Conn. 2008)).) The question of whether receipt of a lump sum that diverged from an account


7

First, the Class points to a sentence in the SPD stating that “[t]he lump sum

payable to you is the greater of your account balance or the amount determined by

multiplying the annuity payable to you by factors required by federal law and IRS

regulations.” (Opp. 40 (quoting A2156).) According to the Class, a participant

reading that isolated sentence would conclude that his lump sum was simply his

account balance multiplied by some IRS factor, which would explain why the lump

sum was larger. (Id.) And since the discrepancy between lump sum and account

balance could be explained, the participant would have no reason to inquire

further. (See id.)

The Class puts far too much weight on that one sentence, however. The

district court did not find a class-wide misunderstanding that larger lump sums

were simply a product of multiplying account balances by an “IRS factor.” Nor

would such a finding be plausible. On the very same page, the SPD states: “Your

accrued benefit at the time your employment terminates is the greater of the

amount determined under the Plan as amended on January 1, 1996 or your accrued

benefit as of December 31, 1995.” (A2156 (emphasis in original).) The

straightforward meaning of that statement is that participants’ prior Plan benefits

might be greater than their cash-balance accounts. See also Point I.B, infra

balance triggered the statute of limitations was never raised or decided during any stage of the Amara proceedings.


8

(discussing individualized communications alerting participants to source of

minimum lump sum).7

The district court pointed out that the latter sentence might mislead a “clever

Participant” because “accrued benefit” was a defined term, and if the SPD’s

provisions were cross-referenced with its Definitions section, it would not lead to a

“correct statement” of the greater-of comparison. (SPA23.) But the hypothetical

“clever Participant” is not the type of employee about whom the district court was

worried in the first place. (See SPA29 (assuming that “employees had an eighth-

grade level of education”).) In any event, a “clever participant” would realize that

application of the definitions leads to an indefensible interpretation, and surely

would find the very fact that his or her lump-sum benefit was greater than the

account balance to require further investigation in its own right.

7 Although the two statements in the SPD may appear to provide alternative methods of calculation, they in fact complement each other. As a matter of law, the age-65 annuity is the starting point for determining the accrued benefit to which a participant is entitled. 26 U.S.C. § 411(a)(7)(A)(i). The first of the two statements advises that the lump-sum value of the age-65 annuity may—after applying the mandated IRS factors—turn out to be greater than the amount in the cash balance account; and if so, a participant’s lump-sum benefit will be that greater amount. The second sentence advises that the annuity from which this lump-sum calculation is derived may be the pre-1996 annuity if it is greater in value than the annuity generated by the cash-balance account. Thus, whether or not a participant elects an annuity or a lump sum, the value of the benefit received may be based on the pre-1996 accrued benefit if that benefit is still greater than the benefit generated by the cash-balance account.


9

Second, the Class argues that the statute could not have run on any of the

16,000 members’ SPD claims because a handful of Class members testified that

they did not figure out that they had suffered wear-away, even after receiving a

lump sum that was different from their account balance. (Opp. 41-42, 44-45.)

According to the Class, if some members did not figure out wear-away, “how can

one conclude that a ‘reasonable’ employee should have figured it out?” (Id. at 44.)

The standard for claim accrual, however, is not actual notice, but inquiry

notice: “when the plaintiff knows, or should know, enough of the critical facts of

injury and causation to protect himself by seeking legal advice.” Corcoran v. N.Y.

Power Auth., 202 F.3d 530, 544 (2d Cir. 1999). Thus, the inability of particular

witnesses actually to figure out wear-away does not answer the pertinent question

of whether the Class had sufficient information to inquire about a potential injury.8

Moreover, contrary to the Class’s assertion (Opp. 44), the record shows that

several participants did figure out that they had suffered wear-away, or at least

asked why their retirement benefit had not grown from year to year. (E.g., A3271-

72; A3205.) Indeed, one participant (Linda Ine) testified that she knew that her

lump sum was based on her pre-1996 accrual, and that other participants had a

8 The Class mistakenly suggests that this Court cannot find inquiry notice without concluding that all of the Class members were “unreasonable.” (Opp. 44.) This Court frequently finds plaintiffs on inquiry notice despite their failure to recognize their injuries without determining them to be “unreasonable.” E.g., Corcoran, 202 F.3d at 544.


10

similar understanding. (See, e.g., A1888 at 989:8-22; A1890 at 999:20-1000:5;

A1891 at 1001:3-11; A1893-94 at 1010:12-1013:11.)9 And many participants

inquired about why their accrued benefits were not growing—so many that Foot

Locker drafted a model letter for purposes of responding to these questions.

(A3204-05; A3148-49; A3126-27.) Because the record shows that a number of

participants were on inquiry notice of wear-away, “a presumption of unawareness

by the plaintiff class is unwarranted.” McLaughlin v. Am. Tobacco Co., 522 F.3d

215, 233 (2d Cir. 2008).

The Class’s suggestion that Foot Locker should have identified more Class

members who inquired about wear-away is misguided. It was the Class’s burden

to show that there were no individualized questions concerning claim accrual, not

Foot Locker’s burden to prove the opposite. See Myers v. Hertz Corp., 624 F.3d

537, 547 (2d Cir. 2010). The Class’s burden could not be sustained merely

through the absence of evidence of complaints or inquiries. There are many

reasons why Class members might not have inquired or complained about wear-

away even if they had reason to suspect that it had occurred—such as a belief that

complaining would be futile, or that the amount of wear-away was negligible

(particularly in the case of the thousands of employees who cashed out of the Plan

9 The Class misrepresents Ine’s testimony. (Opp. 35-36.) Ine did not claim to misunderstand wear-away; she simply did not realize that wear-away could last for more than a few years. (A1900 at 1039:5-14, 1040:7-9.)


11

within months after the conversion), or satisfaction with the ability to take their

benefits in the form of a lump sum—an option that was not available under the

prior Plan. (See, e.g., A1748 at 449:4-14; A1754 at 471:9-17; A1893 at 1010:5-

21.) Thus, there is no inference that can be drawn from the absence of complaints

or any purported failure by Foot Locker to identify additional participants who

inquired about wear-away.

Accordingly, Class members who received lump sums larger than their

account balances were on inquiry notice of their SPD claims when they cashed out

of the Foot Locker plan. Those who cashed out more than three years prior to the

filing of suit were time-barred.

B. Additionally, Many Class Members Received Individualized Communications That Triggered Inquiry Notice.

As Foot Locker explained in its opening brief, many Class members

received personalized communications from the company explaining that their

retirement benefits would be based on their pre-1996 accruals if those accruals

exceeded their account balances. (Opening Br. 8-11, 31-34.) For example, some

Class members received detailed statements explaining that as of the statement

date, their retirement benefit was a “minimum lump sum” tied to their pre-1996

benefit—not to their account balance. (A3139-41; A2770; A3190.) Other similar

communications are described in Foot Locker’s opening brief. (Opening Br. 8-11,

31-34.)


12

The Class offers no meaningful response to these individualized

communications except to cite the testimony of certain witnesses who claimed that

they still did not understand that they might experience wear-away after seeing the

communications. (Opp. 33-37.) Again, that answer begs the question, because the

standard is inquiry notice, not actual notice. See page 9, supra.

Any Class member who received a communication explaining that his

account balance at the time was less than the benefit he was currently entitled to—

or a communication that otherwise explained that he would receive his pre-1996

accrued benefit if it remained greater than his account balance—was on

constructive notice of wear-away, regardless of whether he ultimately received a

lump sum greater than his account balance. The timeliness of a Class member’s

SPD claim therefore cannot be resolved without determining which participants

received which communications and when. As this Court recognized in Novella,

individualized inquiry into the statute of limitations presents a serious

predominance problem. 661 F.3d at 148 (the need for a “fact-dependent inquiry

into each pensioner’s accrual date” may lessen the value “and indeed the

availability” of class actions (emphasis added)). Here, this requires the Court to

remove from the Class every member who cashed out more than three years prior

to the filing of suit. (See Opening Br. 35.)


13

To be clear, Foot Locker is not arguing that the individualized

communications cure the SPD violation. The finding of an SPD violation is not

being challenged on appeal. But that does not answer the question of whether the

Class members’ claims to recover for those violations were timely. When a Class

member received a communication explaining that his benefit might be based on

his pre-1996 accrual, he had sufficient information at least to inquire into the

possibility of wear-away.

C. The Class Cannot Evade The Duty To Inquire By Speculating About What Would Have Happened Had An Inquiry Been Made.

As a fallback, the Class contends that even if members were on inquiry

notice, they should be excused for not inquiring because Foot Locker probably

would have lied to them anyway. (Opp. 43.) But it is each Class member’s burden

to establish that a diligent investigation would not have turned up evidence of their

injury—not, as the Class contends, Foot Locker’s burden to prove the opposite.

See Freschi v. Grand Coal Venture, 767 F.2d 1041, 1047 (2d Cir. 1985), vacated

on other grounds, 478 U.S. 1015 (1986); contra Opp. 43. The Class cannot carry

that burden through speculation.

In any event, the Class’s burden was to show that any reasonable

investigation would have been futile. A reasonable investigation includes

consultation with an attorney. Corcoran, 202 F.3d at 544 (explaining that inquiry

notice triggers a plaintiff’s responsibility to “protect himself by seeking legal


14

advice”). And if Class members had sought the advice of an attorney concerning

the discrepancy between their account balance and their lump sum, that attorney

would have identified wear-away as the source of the discrepancy.10

D. An SPD Claim Has A Three-Year Statute Of Limitations.

The Class contends that even if it loses on the accrual issue, the SPD’s

statute of limitations should be six years, not the three-year period applied by the

district court. (Opp. 49-50; A3556; SPA80.) The Class advocates for a six-year

limitations period by analogizing an SPD claim to a claim for breach of contract.

But the SPD claim does not allege that Foot Locker breached any agreement; to the

contrary, it alleges a failure by Foot Locker to meet its statutory duties to transmit

an SPD that is readily understandable. Even granting that an ERISA plan is by

nature contractual, “the SPD is not part of the ERISA plan,” CIGNA Corp. v.

Amara, 563 U.S. 421, 450 (2011) (Scalia, J., concurring). Thus, any claim alleging

deficiencies in the SPD is not based in the law of contracts.

10 As an alternate basis for affirmance, the Class invokes the doctrine of equitable tolling. (Opp. 48-49.) However, equitable tolling applies only where a plaintiff can show “(1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstance stood in his way and prevented timely filing.” Menominee Indian Tribe of Wisc. v. United States, 136 S. Ct. 750, 755 (2016). Neither element is present here. Indeed, the 16,000 Class members have not shown that they did anything to pursue their rights before they were contacted by Class counsel. See Boos v. Runyon, 201 F.3d 178, 185 (2d Cir. 2000) (explaining that “burden of demonstrating the appropriateness of equitable tolling [] lies with the plaintiff”).


15

II. THE DISTRICT COURT’S REMEDY GIVES PARTICIPANTS WHO EXPERIENCED LITTLE OR NO WEAR-AWAY AN UNDESERVED WINDFALL.

Although the district court spent the bulk of its opinion focused on wear-

away as the source of the company’s liability, when it came to reforming the Plan,

the court rewrote its provisions in several ways that had nothing to do with wear-

away, at an additional cost to Foot Locker of tens of millions of dollars. The Class

parrots the district court’s holdings, but does not grapple with this basic flaw in the

way it performed reformation.

A. The Enhancement Must Be Applied Before The Adjustment For Wear-Away.

From a purely monetary perspective, the principal question about the district

court’s remedy is whether the enhancement for certain senior participants should

be applied after any adjustment to correct for the effects of wear-away, or before it.

The Class, following the district court, argues that the enhancement should come

afterward. But that cannot be right, because it contradicts the court’s own

definition of wear-away and many of its factual findings.

The district court defined the “core claim” of the Class—the wear-away

claim—as being that Foot Locker did not inform participants that for some

duration of time, “additional periods of service did not result in additional

benefits.” (A3460; SPA4.) That is, although participants’ cash-balance account

statements showed continuing growth in pay and interest credits, in reality these


16

credits did not increase the benefit to which the participants were already entitled.

(Id.) This was the one and only class-wide misunderstanding found by the district

court. Consequently, the remedy must match the misunderstanding: Participants

whose benefits did not grow (or grew less than reasonably expected) should

receive the missing pay and interest credits, in addition to the benefit they had

previously earned, and nothing more.

Certain senior participants did not experience wear-away (or experienced

less of it), however, because they received a large enhancement of their starting

account balances. To extend a metaphor, while those participants might otherwise

have begun in a “hole” after the 1996 Plan conversion, the enhancement filled up

the hole—either partway or right up to ground level—and then the pay and interest

credits were piled on top of that. As a result, after conversion, there were fewer (or

no) days that these participants served when their benefits did not increase, and

monetary relief should be limited accordingly. The Class tries to rebut this

reasoning in several ways, but cannot escape its simple logic.

First, following the district court, the Class contends that the purpose of the

enhancement was not to remedy wear-away, and therefore it should not diminish

the wear-away relief that would otherwise be awarded. (Opp. 16, 54.) But even if

the enhancement was promised for reasons completely independent of wear-away


17

(and it was not),11 that argument misses the point. For participants who received

the enhancement, they had fewer or no days of working without increasing their

benefit. The reason for the enhancement is beside the point; the question is what

effect it had.

Second, the Class argues that participants expected to earn the enhancement

on top of their accrued benefit. But the Class did not prove—and the district court

did not find—that there was any such class-wide expectation. And for good

reason: That expectation would fly in the face of the SPD’s plain language, which

states:

Account balances for participants who were age 50 or older with at least 15 years of service for vesting purposes as of December 31, 1995 were enhanced by a one-time formula. The initial account balance for participants who meet these requirements was increased by a factor. The factor was determined as follows: . . . .

(A3506; SPA50 (emphasis added).) Thus, it was clearly explained that the

enhancement would not come “on top” of the initial account balance, but rather

11 The Class claims that the enhancement was designed to compensate more senior participants who were entitled to a subsidized early retirement benefit upon reaching age 55. (Opp. 54.) If the court wished to protect the value of the early-retirement subsidy, the proper recourse was to include its value in the A portion of the A + B relief proposed by defendants. By instead awarding the enhancement as a B benefit, the court enabled participants to receive an added value that far exceeded the true value of the early-retirement subsidy.


18

was already incorporated into it. Many other provisions in the SPD and the

individualized communications said the same thing. (See, e.g., A2156, A2772.)

Third, the Class argues that it is unfair to award the enhancement while

reducing wear-away relief by the same amount. (Opp. 54-55.) That is no more

unfair than compensating one passenger in a car crash less than another because

she wore a seatbelt and consequently was not as badly injured. If wear-away did

not occur, or if its effects were mitigated, then the relief to those participants

should be reduced correspondingly.

Apart from the lack of a legal or factual basis for the Class’s contention that

the enhancement should be applied after the wear-away adjustment, that approach

would yield anomalous results. To begin with, the enhancement would cause

participants who worked just a few weeks after the cash-balance conversion to

receive much more than participants who retired immediately beforehand. To

illustrate, consider a fifty-year-old participant who retired at the end of 1995. He

would receive his accrued benefit under the prior Plan formula. But on the Class’s

theory, if he worked for just one more month, he would receive the same accrued

benefit, plus the few pay and interest credits for the brief period that he worked

under the cash-balance Plan, plus the enhancement. It is simply not plausible that

the company would have created such an irrational incentive structure, whereby


19

participants would receive bonuses of tens of thousands of dollars for only a few

additional weeks of work.

Finally, the Class’s approach would inflate the enhancement without

justification. The enhancement is defined as a certain percentage of the initial

account balance. (A2156.) The initial account balance, in turn, is derived from the

pre-1996 benefit by applying a 9% discount rate and a mortality assumption.

(A2150.) These provisions are expressly spelled out in the SPD, and therefore no

participant could have had a different expectation about the value of that

participant’s enhancement. By resetting the discount rate at 6% and eliminating

the mortality assumption, the district court unilaterally increased the size of initial

balances and the enhancements as well. (Opening Br. 56-59.) Whatever other

reasons the court had for reforming the Plan, those amendments gave participants a

windfall that they plainly did not expect or deserve.

B. The District Court Erred In Resetting The Initial Account Balances.

The Class offers no real defense of the district court’s adoption of a 6%

discount rate to calculate the value of every participant’s pre-1996 benefit. The

most the Class can say is that the court agreed with its expert that it was the most

appropriate way to set an initial account balance. (Opp. 52-53.) But if the goal of

reforming the Plan was to prevent the possibility of wear-away, then the court

should have abandoned initial account balances altogether, in favor of an approach


20

that accurately measured the value of the pre-1996 benefit, thereby ensuring that

participants would receive the full value of the benefits added to their cash-balance

accounts and nothing more.

The proper goal of the court’s remedy should be to give participants the

benefit that they reasonably expected to receive (see SPA72), rather than to adhere

slavishly to the structure of the Plan (a plan that the court anyway found deficient).

According to the district court, wear-away resulted from the fact that participants’

opening balances did not represent the full value of their pre-1996 benefit, as a

result of which the credits added to their cash-balance account did not add to their

benefit for a period of time. The remedial objective, therefore, should be to restore

to participants the full value of their pre-1996 benefit. As a matter of ERISA law,

the value of participants’ pre-1996 benefit was equal to the present value of their

age-65 annuity, discounted back to the year of payment using the IRS-mandated

discount rate in effect when they terminated employment and took a lump-sum

distribution, as well as a reduction to account for mortality. See 29 U.S.C.

§§ 1055(g)(3)(B)(i)-(ii), 1083(h)(3)(A).12

12 Trying to set an appropriate discount rate at the time of conversion is arbitrary, since the IRS-prescribed rate will fluctuate between that point in time and when a participant terminates employment. As it turned out, the IRS rate that was in effect when participants left employment was both higher than 6% and lower than 6%, depending on the time period. (A3343; A3356.) These rate changes generated enormous fluctuations in the dollar value of a participant’s pre-1996 benefit.


21

In short, even though the cause of wear-away may be the failure of the initial

account balances to provide the full value of the pre-1996 benefit, the remedy for

the wear-away experienced by the Class cannot be achieved by resetting the

starting balances. As a matter of both logic and law, the correct time to calculate

the benefit is when a participant leaves employment and elects to receive a lump-

sum benefit. This comports with the A + B relief awarded in Amara and proposed

by Foot Locker.

III. THE DISTRICT COURT ERRED BY FINDING CLASS-WIDE LIABILITY ON THE FIDUCIARY-BREACH CLAIM.

The Class contends that it is unnecessary to review the district court’s

finding of a fiduciary breach, because in its view the SPD violation (the merits of

which are not being appealed) alone is sufficient to support the district court’s

relief order. Alternatively, it contends that there are no grounds for challenging the

fiduciary-breach ruling. It is wrong on both points.

A. Overturning The Fiduciary-Breach Ruling Will Limit the Size of The Class.

The district court’s ruling on the fiduciary-breach claim affects the size of

the Class for whom relief will be granted. Absent a finding of a fiduciary breach,

approximately 3,500 participants would have no entitlement to relief because they

left Foot Locker before the SPD was distributed, and thus have no viable SPD


22

claim. (A1178-79.)13 Indeed, the district court acknowledged as much. (A3473,

A3538 n.32; SPA17; SPA 82 n.32.) The Class cannot salvage relief for these

participants by belatedly asserting a violation of ERISA’s rules governing

Summaries of Material Modifications (“SMMs”). (Opp. 58-59.) The Class never

asserted an SMM claim, the district court did not find an SMM violation, and the

court never even agreed that the communications cited by the Class were SMMs in

the first place. (See A102-43 (amended complaint containing no allegations of

SMM violation); A3527; SPA71.)

Moreover, were Foot Locker to prevail on its constructive-notice argument,

see Point I.A, supra, limiting liability to the SPD claim would limit the Class size

because the limitations period for the SPD claim is shorter than for the fiduciary

breach claim. See Point I.D, supra.

B. The District Court’s Finding Of A Class-Wide Fiduciary Breach Must Be Overturned For Want Of Evidence Of Class-Wide Detrimental Reliance.

The Class argues that in light of Amara, detrimental reliance is no longer an

element of a fiduciary-breach claim; or, alternatively, that the district court

correctly found class-wide detrimental reliance. (Opp. 60-61.) The first

13 The Class’s contention that Foot Locker made this argument in a footnote is nonsense. (Opp. 58.) Foot Locker’s argument on the fiduciary breach claim is found in the body of its brief. (Opening Br. 38-45.) The footnote merely alerted the Court to the practical consequences of that argument.


23

contention is refuted by several cases, both before and after Amara, requiring proof

of detrimental reliance. (See Opening Br. 38); see also Rellou v. Dir. of Human

Res., 439 F. App’x 21, 24 (2d Cir. 2011); Glaziers & Glassworkers Union Local

No. 252 Annuity Fund v. Newbridge Sec., Inc., 93 F.3d 1171, 1182 (3d Cir. 1996).

As the post-Amara cases demonstrate, there is nothing in the Supreme Court’s

Amara decision that changed the law with respect to the elements of a fiduciary-

breach claim; Amara addressed only the standards for equitable relief, and no

fiduciary-breach claim was even asserted in that case. See S.M. v. Oxford Health

Plans (N.Y.), Inc., 94 F. Supp. 3d 481, 513 (S.D.N.Y. 2015), aff'd, No. 15-1234,

2016 WL 1168734 (2d Cir. Mar. 25, 2016); Kenney v. State St. Corp., No. 09-cv-

10750, 2011 WL 4344452, at *7 (D. Mass. Sept. 15, 2011).

The Class’s second contention—that the district court correctly found class-

wide reliance—is misplaced for two reasons. First, Osberg, the Class

representative, failed to present any proof of detrimental reliance. (See Opening

Br. 43-44 & n.9.) Second, what the district court referred to as general evidence of

class-wide detrimental reliance was in fact merely evidence of a misunderstanding

of the Plan terms. The Class cites as class-wide “evidence” of reliance the fact that

no participants complained about wear-away. (Opp. 61-62; A3485, A3529-30 &

n.28; SPA29, SPA73-74 & n.28.) But the failure to complain is not, standing

alone, detrimental reliance. The court would have to find, in addition, that the


24

complaints would have resulted in a change in the Plan—one that would inure to

the benefit of the entire Class. The district court rejected that precise theory as

unduly speculative when it rejected Osberg’s claim for surcharge relief (A181-83),

and he has made no effort to challenge the dismissal of that claim. (See A239;

SPA101.)14

C. Alternatively, The District Court Should Have Dismissed As Time-Barred The Fiduciary-Breach Claims Of Participants Who Left Foot Locker Before 2001.

For the reasons stated above, the SPD and fiduciary-breach classes should be

limited under a “constructive notice” theory to exclude those Class members who

left Foot Locker outside of the applicable limitations period. See Point I.A, supra.

Additionally, the fiduciary-breach Class must be limited because the “fraud or

concealment exception” to ERISA’s six-year period of repose was not properly

invoked here. (See Opening Br. 36-37.)

The Class contends that the fraud or concealment exception applies because

the record purportedly shows that Foot Locker generally acted in a misleading

fashion. (Opp. 62-63.) But the Second Circuit applies the exception only where

all of the elements of common-law fraud have been established. See Caputo v.

Pfizer, Inc., 267 F.3d 181, 188-90 (2d Cir. 2001). Here, the district court went out

14 Contrary to the Class’s assertion, the district court made no finding that all of the participants would have demanded make-whole compensation or left for another employer. (Opp. 61.)


25

of its way not to find common-law fraud. Instead, it found that Foot Locker had

committed “equitable fraud,” which the court was careful to distinguish. (A3533;

SPA77.) That finding was consistent with the evidence, which showed that the

Foot Locker employees responsible for drafting Plan communications did not have

the requisite intent to deceive and that they themselves did not understand wear-

away. (E.g., A1131 ¶¶ 11-12; A1132 ¶ 14; A1134-35 ¶¶ 23-24; A1924 at 1133:15-

15, 1134:13-22; A1931 at 1162:6-11.)

The Department of Labor argues that the “fraud or concealment” exception

should apply regardless of whether the elements of common-law fraud are present

because Foot Locker supposedly “concealed” wear-away, and concealment does

not require proof of common-law fraud. (DOL Br. 17-22.) However, the district

court did not find that the “concealment” prong was satisfied; and, in any event,

concealment also must satisfy the elements of common-law fraud, including intent

to deceive and reliance, which are not supported on this record. See Caputo, 267

F.3d at 188 (holding that the exception applies in cases of “fraud or fraudulent

concealment”).

For these reasons, the fraud or concealment exception to the statute of

limitations is inapplicable, and the fiduciary-breach claim should thus be limited to

participants who left the Plan within six years of the filing of the lawsuit,

regardless of the outcome of this Court’s ruling on the “constructive notice” issue.


26

IV. THE EVIDENCE DOES NOT SUPPORT A FINDING OF CLASS-WIDE MISUNDERSTANDING.

The Class does not dispute that there was abundant evidence of individual

communications regarding the manner in which benefits under Foot Locker’s Plan

were calculated. Instead, it contends that those communications are immaterial

because a handful of trial witnesses testified that the communications did not cause

them to understand wear-away. (Opp. 18-19, 33-36.) Although the Class’s

characterization of the district court’s factual findings is correct, the legal

implications drawn from those findings are not.

It is one thing to rely on the testimony of a handful of witnesses for purposes

of finding class-wide misunderstanding when each witness received exactly the

same communications as the rest of the Class members. That is what this Court

did in Amara v. CIGNA Corp., 775 F.3d 510, 529-31 (2d Cir. 2014) (“Amara

IV”).15 It is a very different case when the testifying participants each received

individualized communications and reached unique understandings of them. (See,

15 Contrary to the Class’s and the district court’s view (Opp. 28), the communications issued by Foot Locker were significantly more individualized and unique than those issued by CIGNA. The communications at issue in Amara included only two SPDs, an SMM, and a 204(h) notice, which were sent to the entire class and lacked any differentiating features that would preclude class certification. Amara IV, 775 F.3d at 529-30. CIGNA also issued annual compensation reports to each participant, which provided participants with the same categories of information about their benefits. See Amara v. CIGNA Corp., 534 F. Supp. 2d 288, 309 (D. Conn. 2008).


27

e.g., A1113 ¶ 17 (Osberg assumed that “the difference was the result of

adjustments required by the IRS that needed to be made to a cash balance account

to calculate the lump sum”); A1351 ¶ 17, A1985 at 1374:21-23 (Steven was not

aware that his benefits were not growing because he did not realize that the 9% rate

was a “discount” rate); A1093 ¶ 14, A1095-96 ¶ 24, A1880-81 at 962:18-963:17,

966:20-967:25 (Albright thought minimum lump sum could be greater than

account balance because Foot Locker was required by federal law to give a

“buyout” to participants who took their benefit prior to age 65).)

Moreover, although the district court did find a misunderstanding among the

witnesses who testified on behalf of the Class, it made no findings with respect to

the unrefuted evidence demonstrating that other participants did understand wear-

away or complained that their accrued benefits were remaining the same. See

pages 9-10, supra. In fact, the court made no reference to that evidence at all.

The unique communications and the evidence that different Class members

understood their benefits differently distinguish this case from Amara and preclude

a finding of class-wide misunderstanding.

CONCLUSION

For the foregoing reasons, the Court should amend the SPD Class to remove

members who cashed out of the Foot Locker Plan more than three years prior to


28

the filing of suit; vacate the monetary award and remand for recalculation; and

reverse the finding of liability on the fiduciary-breach claim.

May 31, 2016 Respectfully submitted,

/s/ Myron D. Rumeld

MYRON D. RUMELD MARK D. HARRIS

PROSKAUER ROSE LLP Eleven Times Square New York, New York 10036 (212) 969-3000

JOHN E. ROBERTS PROSKAUER ROSE LLP One International Place Boston, MA 02110 (617) 526-9600 ROBERT RACHAL PROSKAUER ROSE LLP 650 Poydras Street, Suite 1800 New Orleans, Louisiana 70130 (504) 310-4088 AMIR C. TAYRANI GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, NW Washington, D.C. 20036 (202) 955-8500 Attorneys for Defendants-Appellants Foot Locker, Inc. and Foot Locker Retirement Plan


CERTIFICATE OF COMPLIANCE WITH RULE 32(a)

I hereby certify, pursuant to Federal Rule of Appellate Procedure

32(a)(7)(C), that:

1. This brief complies with the type-volume limitation of Fed. R. App. P.

32(a)(7)(B) because this brief contains 6,701 words, excluding the

parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6)

because this brief has been prepared in a proportionately spaced

typeface using Microsoft Office Word 2010 in 14-point Times New

Roman font.

Dated: May 31, 2016 Respectfully submitted,

By: /s/ Myron D. Rumeld Myron D. Rumeld (MR-3941) Proskauer Rose LLP Eleven Times Square New York, NY 10036-8299 d 212.969.3021 f 212.969.2900

Attorneys for Defendants-Appellants


Date post:	20-Sep-2020
Category:	Documents
Upload:	others
View:	2 times
Download:	0 times

15-3602-cv - Foot Locker Pension Class Actionfootlockerpensionclassaction.com/Foot Locker...

Documents