5th Circuit Sends Back Case for Review of Disclosure Statutory Penalties

September 28, 2011 (PLANSPONSOR.com) – A federal appellate court has determined that employer Houston Poly Bag I, Ltd., by withholding profit sharing plan documents and rollover information, failed to act in a participant’s best interest and “for the exclusive purpose of providing benefits to participants.”

The panel of the 5th U.S. Circuit Court of Appeals said it is troubled by the lack of evidence in the record that Houston Poly ever provided Kenneth Kujanek with the controlling documents for the profit-sharing plan, as required under ERISA § 104(b)(1). Kujanek maintained throughout the litigation that during his employment with Houston Poly, he never received the Summary Plan Description, Adoption Agreement, or Defined Contribution Prototype Plan and Trust.   

Houston Poly argued that it provided the requisite plan information to Kujanek in the summary allocation report it issues to plan participants every year. The summary allocation report lists the participant’s beginning balance, contribution, and ending balance for the year on a spreadsheet, and notifies participants that they have a right to examine documents such as the full annual report, accountant’s report, and a list of the plan’s assets and liabilities. According to the opinion, the report contains no information about how a participant may elect to receive a rollover distribution, nor does it inform the participant of her rights under the profit-sharing plan.   

A district court had awarded Kujanek statutory penalties starting from a 2008 request for documents during the discovery phase of prior litigation, but the 5th Circuit remanded the case back to the district court for additional findings on whether Houston Poly failed to furnish Kujanek with the requisite documents under ERISA § 104(b)(1), and if so, whether that omission serves as a basis for statutory penalties.  

The district court awarded Kujanek $183,881.88 in damages “to restore plan losses”; $25,025 in statutory penalties; and attorney’s fees in the amount of $60,030. The appellate court affirm the award of damages and attorney’s fees.  

In September 2007, Kujanek resigned from Houston Poly after 17 years with the company as a sales representative. At the end of 2007, Kujanek’s profit-sharing account with Houston Poly had vested benefits totaling $490,198.78. Employees were required under company policy to wait at least one year from the date of termination before they could obtain a distribution of their account benefits.   

Two months after Kujanek resigned, Houston Poly sued Kujanek in state court for breach of employment contract, breach of fiduciary duty to the company, and tortious interference with business relations. In April 2008, during the discovery phase of the state court litigation, Kujanek made a production request on Houston Poly for all documents describing the terms and conditions of Houston Poly’s contribution to its profit-sharing plan, and documents describing the eligibility requirements for employees to receive benefits from the plan. Houston Poly objected to the request on relevancy grounds and refused to provide the documents.   

After several requests for his profit sharing distribution and a complete set of the plan documents, in April 2009, Houston Poly responded by sending Kujanek a complete copy of the plan documents and a rollover distribution of $306,000.  

The opinion is at http://www.ca5.uscourts.gov/opinions/pub/10/10-20664-CV0.wpd.pdf.