Source: https://law.justia.com/cases/federal/appellate-courts/F2/590/523/224659/
Timestamp: 2019-06-25 18:37:52
Document Index: 482826275

Matched Legal Cases: ['§ 302', '§ 186', '§ 302', '§ 406', '§ 1106', '§ 2201', '§ 406', '§ 406', '§ 302', '§ 186', '§ 406', '§ 406', '§ 408', '§ 406', '§ 408', '§ 408', '§ 406', '§ 186']

Cutaiar, Richard, Lemon, William, Dagen, Vincent, Schurr,maurice, and Gormley, William, As Trustees of the Teamstershealth and Welfare Fund of Philadelphia and Vicinity and Astrustees of the Teamsters Pension Trust Fund of Philadelphiaand Vicinityandschaffer, Jr., Charles J., Administrator of the Teamstershealth and Welfare Fund of Philadelphia Andvicinity and As Administrator of Theteamsters Pension Trust Fundof Philadelphia and Vicinityandteamsters Pension Trust Fund of Philadelphia and Vicinityandteamsters Health and Welfare Fund of Philadelphia and Vicinity v. Marshall, F. Ray, Secretary of Labor, Appellant, 590 F.2d 523 (3d Cir. 1979) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Third Circuit › 1979 › Cutaiar, Richard, Lemon, William, Dagen, Vincent, Schurr,maurice, and Gormley, William, As Trustees...
Cutaiar, Richard, Lemon, William, Dagen, Vincent, Schurr,maurice, and Gormley, William, As Trustees of the Teamstershealth and Welfare Fund of Philadelphia and Vicinity and Astrustees of the Teamsters Pension Trust Fund of Philadelphiaand Vicinityandschaffer, Jr., Charles J., Administrator of the Teamstershealth and Welfare Fund of Philadelphia Andvicinity and As Administrator of Theteamsters Pension Trust Fundof Philadelphia and Vicinityandteamsters Pension Trust Fund of Philadelphia and Vicinityandteamsters Health and Welfare Fund of Philadelphia and Vicinity v. Marshall, F. Ray, Secretary of Labor, Appellant, 590 F.2d 523 (3d Cir. 1979)
U.S. Court of Appeals for the Third Circuit - 590 F.2d 523 (3d Cir. 1979)
Argued Nov. 17, 1978. Decided Jan. 12, 1979
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):
Although jurisdiction was invoked under ERISA and the Administrative Procedure Act, the trustees sought only declaratory relief. Title 28 U.S.C. § 2201 allows a federal court to grant a declaratory judgment in "a case of actual controversy." The statute creates a remedy only; it does not create a basis of jurisdiction, and does not authorize the rendering of advisory opinions. Thus the Supreme Court has held that there must be a "live dispute" between the parties, Powell v. McCormack, 395 U.S. 486, 517-18, 89 S. Ct. 1944, 23 L. Ed. 2d 491 (1969), and that there must be a "substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Zwickler v. Koota, 389 U.S. 241, 244 n. 3, 88 S. Ct. 391, 393, 19 L. Ed. 2d 444 (1967). The Court has also held that the Declaratory Judgment Act requirement of an "actual controversy" is identical to the constitutional requirement of "cases" and "controversies." Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 239-40, 57 S. Ct. 461, 81 L. Ed. 617 (1937).
Our review of the merits raises questions of the interaction of various provisions of the Taft-Hartley Act and ERISA. Simply put, the trustees urge that no violation of ERISA occurred because the two funds were not adverse within the meaning of the Act, and that even if a violation occurred, good faith reliance on the umpire's award is a valid defense. The Secretary's conclusion that a violation did occur was based on his interpretation that § 406(b) (2) creates a per se proscription of the type of transaction in question, and that a Taft-Hartley umpire cannot possibly adjudicate the legality of a transaction under ERISA. The Secretary's position is that a borrower and a lender in the same transaction are always "adverse" within the meaning of § 406(b) (2). Brief for Appellant at 27.
The pension and welfare plans, from their inception, had been subject to the rigid structural requirements of the Taft-Hartley Act. A central section of the Act, § 302(c) (5), 29 U.S.C. § 186(c) (5), requires that employee benefit plans to which employers contribute must have an equal number of employer and employee representatives, and if the two groups cannot agree on the administration of the fund, they must choose an impartial umpire to decide the dispute.1 It was under this provision that the trustees of the pension plan submitted the propriety of the loan transaction to the umpire. The umpire, as we have noted, decided that the proposed loan would not violate the Taft-Hartley Act or ERISA.
The Department of Labor, exercising its investigatory and enforcement responsibilities under ERISA, examined the loan and determined that the pension trustees acted on behalf of a party, the welfare plan, whose interests were adverse to interests of the pension plan, thus violating § 406(b) (2). The Secretary's reasoning relies on the fact that the participants and beneficiaries in the two plans are not co-extensive, though it is undisputed that a great many employees participate in both plans and that most participants in the welfare plan are future participants in the pension plan and thus have a strong interest in the strength of the fund. Also critical to the Secretary's conclusion is the conception that a borrower and a lender in the same transaction always have interests which are legally opposed.
With this framework, the issues are resolved by a simple exercise in statutory construction. Does § 406(b) (2) prohibit transactions "adverse" in the technical sense asserted by the Secretary, or must a transaction exhibit fiduciary misconduct, reflecting harm to the beneficiaries, before the statute is violated? We endorse without reservation the interpretation of the Secretary. When identical trustees of two employee benefit plans whose participants and beneficiaries are not identical effect a loan between the plans without a § 408 exemption, a per se violation of ERISA exists.
We have no doubt that the pension fund's loan to the welfare fund falls within the prohibition of § 406(b) (2). Fiduciaries acting on both sides of a loan transaction cannot negotiate the Best terms for either plan. By balancing the interests of each plan, they may be able to construct terms which are fair and equitable for both plans; if so, they may qualify for a § 408 exemption. But without the formal procedures required under § 408, each plan deserves more than a balancing of interests. Each plan must be represented by trustees who are free to exert the maximum economic power manifested by their fund whenever they are negotiating a commercial transaction. Section 406(b) (2) speaks of "the interests of the plan or the interests of its participants or beneficiaries." It does not speak of "some" or "many" or "most" of the participants. If there is a single member who participates in only one of the plans, his plan must be administered without regard for the interests of any other plan.
It is commonplace that new statutes create new requirements and prohibitions where none existed before. It is axiomatic that provisions in different statutes should, if possible, be interpreted so as to effectuate both provisions. The Taft-Hartley umpire provision was created to break deadlocks between employer and employee groups "(on) the administration of such fund," not to insulate trustees from the effects of their illegal acts. Surely if the employer and employee trustees deadlocked over a motion to embezzle the fund, submission of the dispute to an umpire would have no legal effect. Section 302(c) (5) of the Taft-Hartley Act contemplates the resolution of deadlocks over two Permissible administrative courses of action. Because the transaction in question was prohibited by statute in 1974, a Taft-Hartley umpire had no power to approve it in 1975.
We hold that the final action of the Secretary in issuing a letter specifying a violation of ERISA by the trustees of an employee benefit plan is reviewable under the Administrative Procedure Act and presents a case or controversy under the Constitution. We endorse the Secretary's interpretation of § 406(b) (2) and hold that it creates a per se prohibition of a transfer between two funds where the trustees are identical but the participants and beneficiaries are not.
29 U.S.C. § 186(c) (5) provides: