Opinion ID: 3030162
Heading Depth: 3
Heading Rank: 2

Heading: ERISA Objections

Text: Appellants argue that the offset provision violates ERISA. They contend, and the receiver does not dispute, that as to those receivership claimants who are ERISA plans, the receiver is an ERISA fiduciary, defined to include a person who, with respect to a plan, “exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control regarding management or disposition of its assets. . . .” 29 U.S.C. § 1002(21)(A). [2] Assuming without deciding that the receiver is an ERISA fiduciary, we find nothing in the ERISA statute which prohibits the offset provision. Appellants cite general ERISA provisions requiring a fiduciary to act with prudence and undivided loyalty, and stating that the fiduciary must use plan assets for the exclusive benefit of plan beneficiaries. E.g., 29 U.S.C. §§ 1103(c)(1), 1104(a)(1)(A) & (B). They also cite a provision prohibiting the transfer of plan benefits to persons other than plan beneficiaries. 29 U.S.C. § 1056(d)(1) (“Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.”). Appellants do not persuade us that the offset provision violates those provisions. In this case, any distribution scheme necessarily requires the receiver to divide up assets of the receivership which are inadequate to cover all the net losses of all the CCL clients. A change in the distribution formula that increases the distributions to some clients and reduces the distributions to others does not alone imply a breach of fiduciary duty by the receiver. By this reasoning, eliminating the offset clause would violate ERISA since it would favor some ERISA plans over others. In this context, we find unpersuasive the argument of the Electrical Funds that the receiver violated ERISA because “[u]nder the duty of loyalty, the inquiry is not whether the EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1359 50% offset is fair to the CCL clients as a whole. The Receiver must show that he has acted in the best interests of the participants and beneficiaries of each of the ERISA Plans.” This argument ignores the limited fund aspect of this case. In a zero sum game, favoring one fund necessarily disfavors another. The Oregon Laborers’ argument that the receiver never “considered what was best for any plan” ignores the impossibility of doing what is best for every claimant to a limited fund. Holding the receiver to a standard of undivided loyalty to a particular client makes little sense in this context. The ERISA statute does not require the fiduciary to achieve the impossible; it requires that he act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B) (emphasis added). To the extent appellants argue that some non-ERISA plans would see increased distributions at the expense of ERISA plans, they cite no authority persuading us that the receiver was legally obligated to favor ERISA plans over non-ERISA plans. The DOL appears to concede that no such higher duty to ERISA clients exists.10 Further, appellants do not explain, with appropriate citation to proof in the record, what effect the elimination of the offset provision would have on the overall split of receivership assets between ERISA and non-ERISA claimants. The receiver claims that many ERISA plans are not expected to obtain third-party recoveries. If the receiver is correct, these ERISA plans will actually be worse off if the offset provision is eliminated. 10 The DOL states that it “does not suggest that the receiver’s duties of prudence and loyalty obligated him to favor the [ERISA] plans in any way or prioritize their claims.” 1360 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON The DOL argues that it is improper “to require ERISA plans to effectively transfer 50% of recoveries that are uniquely available to them to other CCL investors before the plans have been made whole for their own losses.” The Electrical Funds and the Oregon Laborers similarly argue that under ERISA and receivership law the receiver and the district court had no power or “jurisdiction” over their thirdparty claims, and that ERISA prohibits their “dominion” over such claims. The receiver is not in our view illegally transferring from one ERISA plan to another CCL client an asset belonging to the ERISA plan. The ERISA plan is free to pursue third-party claims as it wishes. The receiver is adjusting the claim of the ERISA plan to the assets of the receivership, to reflect monies received from third-party claims. Ultimately, this argument is simply another way of arguing that the offset rule creates a free rider problem, and we find no provision in the ERISA statute that compels us to alter our analysis or our conclusion that the district court did not abuse its discretion. [3] The district court and the receiver were not attempting to exercise “jurisdiction” over third-party actions. A judge is allowed to reduce a judgment in his own court to reflect the amount a plaintiff has already received from another party or in another proceeding. See, e.g., Vesey v. United States, 626 F.2d 627, 633 (9th Cir. 1980); Layne v. United States, 460 F.2d 409, 411 (9th Cir. 1972). The court in the pending case was simply fashioning equitable relief in its own case to allow for a more equal distribution of limited funds to the many innocent victims of CCL’s collapse. A somewhat similar argument was rejected in Equity Funding, discussed above. The district court in that class action approved an offset provision which reduced distributions to class members who had already received assets in a separate bankruptcy proceeding. The Ninth Circuit rejected the argument that the offset violated the “integrity” of the bankruptcy proceeding and held that the distributions made in the bankruptcy court “were not reduced or modified” by the class action settlement plan. 603 F.2d at 1363-64. EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1361