McKennon Law Group PC has successfully defended its client against a Motion to Dismiss (the “Motion”) filed by Northrop Grumman Corporation and its associated pension plan (collectively “NG”) in Sheets v. Administrative Committee of the Northrop Grumman Space & Mission Systems Salaried Pension Plan, No. 2:22-cv-07607, slip op., at 1 (C.D. Cal. Nov. 22, 2023).  The Motion argued that our client, Michael Sheets, had failed to properly allege claims for relief when he sued NG in federal court in the Central District of California.  (In addition to addressing insurance matters, McKennon Law Group PC also attempts to compel pension plans and employers to pay pension benefits that are improperly withheld).  In this matter, we were hired to address NG’s refusal to pay our client, Mr. Sheets, pension benefits that were promised to him.  To compel our client to leave his former employer, Boeing, NG promised him pension benefits.  The promised benefits related to his having previously worked for a company that NG had acquired, TRW, Inc.  Mr. Sheets already possessed a vested pension under TRW’s pension plan.  NG had promised him that if he left his current employer and began working for NG, his time working for NG would “bridge” with his time spent working for TRW.  This would result in a significantly greater pension benefit.  He left his former employer and worked for NG for five years.  He diligently sought and received confirmation, in writing, that he would be entitled to a particular level of pension benefits if he began working for NG.  After working for NG for five years, he retired.  Before retiring, he wisely made personal copies of many of the communications related to his pension benefits.  After receiving the promised level of benefits for seven years, NG unilaterally decided that it had erred, and it reduced his benefits by over one-half.  Mr. Sheets appealed, and when his appeal was denied, he hired us to assist him.  We promptly sued NG to compel it to resume paying Mr. Sheets the promised level of benefits, and for attorneys’ fees, costs, and interest.  The complaint asserted claims for improper denial of benefits and breach of fiduciary duty under ERISA.  Out of an abundance of caution and in the alternative, we also brought state law claims for negligent misrepresentations, fraudulent misrepresentations, and unjust enrichment.  NG, in turn, filed the Motion.  After extensive briefing, the Court ruled in Mr. Sheets’ favor on the ERISA claims.

As for the claim for improper denial of benefits, the Court ruled that the applicable plan documents potentially supported such a claim.  The parties first argued before the Court as to which version of the Plan controlled the dispute: the version in effect when Mr. Sheets was hired, or the one in effect when he retired.  Without providing a definitive ruling, the Court stated that at this stage in the litigation, the version Mr. Sheets alleged controlled, in fact controls.  The Court then provided a thorough analysis of the plan documents and concluded that they could potentially support Mr. Sheet’s claim for improper denial of benefits.

The Court then addressed Mr. Sheet’s claim for breach of fiduciary duty.  NG argued that the claim was improper for two reasons: (1) the applicable statute of limitations rendered it untimely and (2) the alleged breaches were ministerial actions and, therefore, could not be subject to a breach of fiduciary duty claim.  The Court rejected both arguments.

As for the argument that Mr. Sheet’s complaint was barred by the statute of limitations, NG argued that the complaint had to be filed by no later than 2014, before NG had reduced Mr. Sheets’ pension benefits.  This was based on a draconian analysis of the applicable statute of limitations, 29 U.S.C. Section 1113.  The Court rejected this interpretation.  As the Court explained, “The Ninth Circuit has adopted a two-step process in considering the ERISA statute of limitations: first, courts ask when the ‘breach or violation’ occurred, and second, courts ask when the plaintiff had ‘actual knowledge’ of the breach or violation. Ziegler v. Conn. Gen. Life Ins. Co., 916 F.2d 548, 550 (9th Cir. 1990).”  Sheets, No. 2:22-cv-07607-MEMF at 13.  The Court explained that, pursuant to the operative complaint, the misrepresentations that formed the basis of the breach of fiduciary duty claim arose in 2008.  All other alleged breaches occurred in 2021.  The Court then addressed the second stage in the analysis: when Mr. Sheets learned of the breaches.  This occurred in 2021.  The Court completed its analysis by explaining that:

Accordingly, the statute of limitations does not begin to run on these until 2021. See Ziegler, 916 F.2d at 552 (“We stress that an ERISA plaintiff’s cause of action cannot accrue[,] and the statute of limitations cannot begin to run until the plaintiff has actual knowledge of the breach, regardless of when the breach actually occurred. The ERISA statute of limitations, 29 U.S.C. § 1113, requires satisfaction of this second prerequisite, the plaintiff’s actual knowledge of the breach, before the statute can begin to run.”).

The six-year statute of limitations would apply to these allegations (which allege fraud) pursuant to the closing portion of the provision. 29 U.S.C. §§ 1113 (“[I]n the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.”). These are therefore not barred.

With respect to the other violations, it appears that the six-year statute of limitations would apply. Regardless, however, of whether the three-year or six-year statute of limitations applies, these are not barred, and the Court declines the dismiss the FAC on this basis.

Id. at 14-15.

Having concluded that the complaint was timely filed, the Court addressed the sufficiency of the allegations.  As the Court explained, “‘To state a claim for breach of fiduciary under ERISA, a plaintiff must allege that (1) the defendant was a fiduciary; (2) the defendant breached a fiduciary duty; and (3) the plaintiff suffered damages.’ Bafford v. Northrop Grumman Corp., 994 F.3d 1020, 1026 (9th Cir. 2021).”  Id. at 15.  NG argued at length that Bafford, a pension dispute previously decided by the Ninth Circuit Court of Appeals, barred Mr. Sheets’ claims.  The Court ruled that NG’s analysis was in error.  It explained that:

The Northrop Defendants argue that Sheets cannot maintain a claim for breach of fiduciary duty based on the alleged misrepresentation that his benefits would “bridge” if he came back to work at Northrop. The Northrop Defendants cite extensively to Bafford, arguing that any statements concerning “bridging” were merely “ministerial” in nature and fall within Bafford’s holding excluding such conduct as the basis for a breach of fiduciary duty. Mot. at 15-16. However, Bafford makes clear that the miscalculation of benefits at issue in that case was ministerial in nature because under the facts of that case, it did not involve discretion. Bafford, 994 F.3d at 1028 (“[D]iscretion is one of the central touchstones of a fiduciary role.”). Bafford explains that, in contrast, conduct such as communicating with plan beneficiaries about plan benefits—as Sheets alleges Davis and Solis did here—is a fiduciary function, no matter who performs it, and is actionable as a breach of fiduciary duty. Id. at 1027-28. Northrup’s arguments to the contrary fail. Mot. at 15-17; Reply at 7. The Court therefore declines to dismiss the FAC on this ground.

Id.  The Court then proceeded to address the various breaches of fiduciary duty that Mr. Sheets had alleged.  The Court found that all but one had been properly alleged.  As for the improperly alleged breach, it noted that, “Because it appears that Sheets may be able to adduce additional facts in support of these purported violations, the dismissal is with leave to amend.”  Id. at 16.

The Court then proceeded to dismiss Mr. Sheets’s state law claims.  It ruled that they were preempted by ERISA.  Whereas this was disappointing, these claims were always pled in the alternative.  Given that the Court ruled that the ERISA claims were properly alleged, this dismissal does not meaningfully diminish our client’s case.

The Court’s denial of NG’s motion was significant.  It allows Mr. Sheets to pursue his claims in in the litigation and is a good roadmap for the parties.  It also serves as additional precedent that employers and pension plans cannot deceive would-be employees with false promises of benefits.  When people receive information from their pension plans, they often make life-altering decisions in reliance thereon.  Employers and plans cannot be permitted to change their position after it is too late for employees to protect themselves.