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Cutaiar v. Marshall

decided: January 12, 1979.

CUTAIAR, RICHARD; LEMON, WILLIAM; DAGEN, VINCENT; SCHURR, MAURICE, AND GORMLEY, WILLIAM, AS TRUSTEES OF THE TEAMSTERS HEALTH AND WELFARE FUND OF PHILADELPHIA AND VICINITY AND AS TRUSTEES OF THE TEAMSTERS PENSION TRUST FUND OF PHILADELPHIA AND VICINITY AND SCHAFFER, JR., CHARLES J., ADMINISTRATOR OF THE TEAMSTERS HEALTH AND WELFARE FUND OF PHILADELPHIA AND VICINITY AND AS ADMINISTRATOR OF THE TEAMSTERS PENSION TRUST FUND OF PHILADELPHIA AND VICINITY AND TEAMSTERS PENSION TRUST FUND OF PHILADELPHIA AND VICINITY AND TEAMSTERS HEALTH AND WELFARE FUND OF PHILADELPHIA AND VICINITY
v.
MARSHALL, F. RAY, SECRETARY OF LABOR, APPELLANT.



Before Aldisert and Hunter, Circuit Judges, and Gerry, District judge.*fn*

Author: Aldisert

Opinion OF THE COURT

The Secretary of Labor, responsible for enforcement of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 Et seq., issued an opinion letter stating that certain transactions by the trustees of two union employee benefit plans were in violation of the Act. The trustees sought, and the district court granted, a declaratory judgment that the Secretary's letter was "null and void." This appeal requires us to decide whether the trustees' complaint presented a justiciable controversy, and, if so, whether there was a violation of ERISA. Because we find no jurisdictional defect, and because the trustees violated the Act, we reverse.

I.

In 1951, the Teamsters Health and Welfare Fund of Philadelphia and Vicinity (welfare fund) was created to provide medical, hospital, disability, life insurance and other welfare benefits to members of a number of Teamster local unions in Eastern Pennsylvania. In 1957, the Teamsters Pension Trust Fund of Philadelphia and Vicinity (pension fund) was created to provide retirement income to members of the same union locals. Both employee benefit plans were established and administered pursuant to the terms of the Labor Management Relations Act of 1947, 29 U.S.C. § 141 Et seq. (Taft-Hartley Act). The obvious parallelism of the plans and the large overlap in the identity of participants, union locals and employers who were parties to the plans made it feasible to administer them jointly. Each of the multi-employer plans had an administrator and a board composed of three union-designated trustees and three employer-designated trustees; these seven individuals were the same for both plans.

In 1974, due to decreased employer contributions, rising medical costs and increased utilization, the welfare fund developed a serious cash flow problem. By mid-1975, it became clear that the fund would have to borrow $4 million to pay currently accumulated benefit claims, and the trustees voted unanimously to do so on the recommendation of the administrator. By contrast to the welfare fund, the pension fund had ample liquid assets. It appeared possible to benefit both funds by transferring the money from one to the other; the pension fund, as lender, might receive a higher rate of interest than was commercially available while the welfare fund, as borrower, might pay less interest than would be required commercially. On a motion to lend the $4 million to the welfare fund, the pension fund trustees deadlocked, three of them expressing concern as to their fiduciary responsibility in authorizing the transactions, and the issue was referred to an impartial umpire under § 302(c)(5) of the Taft-Hartley Act, 29 U.S.C. § 186(c)(5). The umpire was asked to decide the legality of the loan under ERISA.

The umpire issued an award holding that the trustees' deadlock presented an arbitrable dispute under § 302(c)(5), that ERISA did "not countermand or modify the impact" of the Taft-Hartley Act in this respect, and that nothing in ERISA prohibited the pension fund from making the disputed loan to the welfare fund. Although the umpire did not direct the trustees to enter into the proposed transaction, the decision satisfied the concerns of the trustees and the loan was consummated.

A subsequent investigation by the Department of Labor led to the conclusion that the loan violated ERISA § 406(b)(2), 29 U.S.C. § 1106(b)(2):

(b) A fiduciary with respect to a plan shall not

(2) in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries. . . .

On August 3, 1977, the Deputy Administrator for Pension and Welfare Benefit Programs, United States Department of Labor, wrote to the trustees to inform them of the violation. Among other things, the letter stated that

while you were fiduciaries with respect to the Pension Trust, you acted in a "transaction involving the plan on behalf of a party (the Welfare Trust) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries." . . . Also, you should be aware that if the Pension Trust suffers any losses because of this transaction, you may be held personally liable therefor under § 409. For your future guidance, please be advised that we are of the view that any sale or loan between the two plans as presently administered is violative of § 406, and exemptions under § 408 of the ERISA should be sought with regard thereto.

Appendix at 62-63. The issuance of this letter allegedly made it difficult for the trustees to obtain fiduciary liability insurance. They filed suit in federal district court seeking a declaratory judgment that the letter was null and void because the Secretary exceeded his authority under ERISA and erroneously determined that the trustees violated the Act.

The Secretary has appealed from the order of the district court which granted the requested relief. We are asked to examine various provisions of the Taft-Hartley Act and the interaction of the subsequently enacted ERISA provisions relating to the administration of employee benefit plans. Preliminarily, however, we must address a challenge to the jurisdiction of the court based on the assertion that the trustees' complaint did not present a justiciable controversy under Article III of the Constitution.

II.

The Secretary's jurisdictional challenge is predicated on the notion that the trustees "hinged their suit for declaratory relief on the allegation that the Secretary's letter of August 3, 1977 had created a "serious doubt' that the plaintiff Trustees would be able to secure fiduciary insurance." Brief for Appellant at 18. Appellant asserts that without the alleged adverse impact on their ability to obtain insurance, the trustees would lack standing to litigate the Secretary's interpretation of ERISA, and that the Secretary's decision not to impose sanctions for the violation precludes a finding of justiciability. Id. at 18-19. Appellant alleges that proof of adverse impact on the trustees fell far short of the allegations in the complaint.

The trustees, on the other hand, argue that the district court's factual finding that the Secretary's letter had a "negative effect" on their ability to obtain insurance was not clearly erroneous, that the effect was sufficient to establish the immediacy, reality and adversity of an "actual controversy." Appellees also argue their standing "to challenge the Secretary's ruling wholly irrespective of the effect that the . . . letter may have had on their ability to obtain new insurance," Brief for Appellees at 10, because their complaint sought judicial review of final agency action pursuant to §§ 502(k) and 507(a) of ERISA, 29 U.S.C. §§ 1132(k) and 1137(a). This raises the fundamental inconsistency of appellant's position: the Secretary asserts his authority to investigate employee benefit plans and to interpret and enforce the ...


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