Opinion ID: 554068
Heading Depth: 1
Heading Rank: 5

Heading: count 4: erisa reporting requirements

Text: 32 In addition to the claim for breach of fiduciary duties contained in Count 2 of his complaint, Pappas alleges in Count 4 that, in submitting annual reports to the Internal Revenue Service as required under ERISA's reporting and disclosure provisions, ERISA Secs. 101-111, 29 U.S.C. Secs. 1021-1031, Hartt falsely represented that the reports were complete and accurate, were based on the Plan's experience and reasonable expectations and represented their best estimates of anticipated experience under the Plan. Complaint p 37. While ERISA's civil enforcement provisions provide a cause of action for misstatements contained in reports filed with regulators, the only parties liable under these provisions are plan administrators and, under one provision, employers. See ERISA Sec. 502(a)(4), (c)(1)-(3); 29 U.S.C. Sec. 1132(a)(4), (c)(1)-(3). Recognizing that Hartt and Buck Consultants lie outside the ambit of these provisions, the district court accurately described this claim as seek[ing] to create a private right of action based upon ERISA reporting requirements, Mem.Op. at 8, and dismissed it for failure to state a claim. 33 On appeal, Pappas argues that we should allow ERISA beneficiaries to sue professionals who assist plan administrators in the preparation of statutorily required reports and misrepresent the financial health of ERISA plans in these reports. He puts forward three theories in support of this contention: first, that ERISA's remedial purpose will be thwarted if courts do not imply a private cause of action against these professionals; second (and closely related), that we should create a cause of action against these professionals arising under federal common law; and third, that Hartt is liable for inducing Pappas, Feinman, or both to breach the fiduciary duties they owed to the Plan's beneficiaries by approving the excessive distribution to Feinman that left the Plan financially impaired. We address these arguments in turn. A. Implied Right of Action 34 Pappas first contends that the district court erred in declining to allow an implied right of action against non-fiduciaries who provide erroneous information to the regulators charged with monitoring the financial health of ERISA plans. We think the district court was right to decline both of these invitations to tamper with an enforcement scheme crafted with such evident care as the one in ERISA. Massachusetts Mutual Life Ins. v. Russell, 473 U.S. 134, 147, 105 S.Ct. 3085, 3093, 87 L.Ed.2d 96 (1985); see Painters of Philadelphia, 879 F.2d at 1152. Pappas points us to no evidence that Congress intended to allow recoveries from anyone other than administrators and employers beyond the assertion that ERISA was intended to protect beneficiaries. This statement, while true, does not rebut the strong presumption that the remedy he urges us to imply into ERISA's  'comprehensive legislative scheme'  was  'deliberately omitted'  by Congress. Massachusetts Mutual Life, 473 U.S. at 147, 105 S.Ct. at 3093 (quoting Northwest Airlines v. Transport Workers, 451 U.S. 77, 97, 101 S.Ct. 1571, 1583, 67 L.Ed.2d 750 (1981)); see Giardono v. Jones, 867 F.2d 409, 413 (7th Cir.1989) ([T]he statutory scheme of ERISA does not lend itself to judicial expansion of available remedies.). 35 As the Supreme Court observed in Massachusetts Mutual Life, 473 U.S. at 147, 105 S.Ct. at 3093,  '[W]here a statute expressly provides a particular remedy or remedies, a court must be chary of reading others into it.'  (quoting Transamerica Mortgage Advisors v. Lewis, 444 U.S. 11, 19, 100 S.Ct. 242, 246-47, 62 L.Ed.2d 146 (1979)). As in Massachusetts Mutual Life, in deciding whether to imply a private right of action into ERISA, we look to the four-factor test set out in Cort v. Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 2087-88, 45 L.Ed.2d 26 (1975), see 473 U.S. at 145, 105 S.Ct. at 3091-92. Like the plaintiff in Massachusetts Mutual Life, Pappas has satisfied the first of the four factors set out in Cort: as a plan beneficiary, he is a member  'of the class for whose especial benefit the statute was enacted.'  Cort, 422 U.S. at 78, 95 S.Ct. at 2088 (quoting Texas & Pacific R. Co. v. Rigsby, 241 U.S. 33, 39, 36 S.Ct. 482, 484, 60 L.Ed. 874 (1916)). However, Pappas cannot satisfy the next three branches of the Cort test. First, were we to create the cause of action he seeks, we would essentially supplant state-law malpractice claims against professionals who negligently prepare the reports ERISA requires. Thus, the federal cause of action he proposes is ... one traditionally relegated to state law. Cort, 422 U.S. at 78, 95 S.Ct. at 2088; see Painters of Philadelphia, 879 F.2d at 1152-53. Second, and even more damaging to Pappas's argument, is the fact that there is no indication of legislative intent, explicit or implicit, id., suggesting that Congress viewed the remedy Pappas asks us to create as a desirable one. We have already noted, supra at 539, that suits against non-administrators for violations of reporting requirements are not included among the mechanisms for civil enforcement set out in ERISA Sec. 502(a) or (c). In Massachusetts Mutual, the Supreme Court found that Congress's silence concerning the private right of action the plaintiff in that case sought to assert to be strong evidence that Congress did not intend it to exist. 473 U.S. at 146, 105 S.Ct. at 3092. Likewise, the fact that Congress did not authorize suits against non-fiduciaries for breaches of reporting requirements is strong evidence that no such suits were intended by ERISA's drafters. Pappas introduces no evidence drawn from the language or legislative history of ERISA to persuade us to answer the central question of whether Congress intended to create the private remedy asserted in his favor. Transamerica Mortgage Advisors, 444 U.S. at 17, 100 S.Ct. at 246. 36 Turning to the third of the Cort factors, we recognize that allowing suits against negligent non-administrators who misrepresent the financial health of an ERISA plan in forms filed with regulators might give the actuaries and accountants who complete these documents an additional incentive to complete their reports with the degree of care expected of the reasonable professional. However, the interest ERISA beneficiaries have in competent plan consultants is already vindicated by the availability of state-law malpractice suits brought by beneficiaries who rely on misrepresented information contained in annual reports when the substance of these reports is disseminated to beneficiaries as required under ERISA. See ERISA Sec. 105(c), 29 U.S.C. Sec. 1025(c). Creating a federal private right of action would contribute little to the goals of plan financial integrity and informed beneficiaries that ERISA's notification and enforcement provisions were intended to attain. 1 It is thus difficult to conclude that the creation of a private right of action against professionals is any more consistent with the underlying purposes of ERISA than the existing remedy of state-law malpractice actions. Cort, 422 U.S. at 78, 95 S.Ct. at 2087-88. As in Cort itself, the private remedy proposed would not aid the primary congressional goal. Id. at 84, 95 S.Ct. at 2090. Because Pappas has satisfied only one of the four Cort factors, and especially because he has failed to argue convincingly that Congress intended that the remedy he seeks be created, we conclude that the district court was correct in refusing to find an implied private right of action against negligent but nonfiduciary professionals who cause injury to ERISA plans. B. Federal Common Law 37 Pappas next argues that we should look to our power to fill the interstices of congressional enactments with federal common law to find a cause of action against Hartt and other non-administrators who make misrepresentations in ERISA annual reports. We disagree with this view of our limited power to add to ERISA's arsenal of civil enforcement devices. Speaking to the scope of the power to derive federal common law from statutory schemes such as ERISA, the Supreme Court observed in Milwaukee v. Illinois, 451 U.S. 304, 319, 101 S.Ct. 1784, 1793, 68 L.Ed.2d 114 (1981), that [t]he establishment of ... a self-consciously comprehensive program by Congress ... strongly suggests that there is no room for courts to attempt to improve on that program with federal common law. It is true that the Supreme Court has held that the courts are to develop a 'federal common law of rights and obligations under ERISA-regulated plans.'  Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 109 S.Ct. 948, 954, 103 L.Ed.2d 80 (1989) (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S.Ct. 1549, 1557, 95 L.Ed.2d 39 (1987)); see Fox Valley & Vicinity Const. Workers Pension Fund v. Brown, 897 F.2d 275, 281 (7th Cir.) (en banc ), cert. denied, --- U.S. ----, 111 S.Ct. 67, 112 L.Ed.2d 41 (1990) (When ERISA is silent on an issue, a federal court must fashion federal common law rules to govern ERISA suits.). Pappas's argument to the district court, however, did not concern  'rights and obligations'  under an ERISA plan; rather it concerned the distinct question of whether ERISA creates a remedy against parties other than plan administrators for violations of these  'rights and obligations.'  38 The distinction between the power of federal courts to create a substantive federal common law of contracts and trusts under ERISA and our far more circumscribed power to augment ERISA's remedial provisions is supported by the Supreme Court's decision in Pilot Life. In that case, the Supreme Court noted the broad powers of the federal courts to create federal common law under ERISA, but observed that ERISA Sec. 502(a), 29 U.S.C. Sec. 1132, set[s] forth a comprehensive civil enforcement scheme that represents a careful balancing of the need for prompt and fair claims settlement against the public interest in encouraging the formation of employee benefit plans, 481 U.S. at 54, 107 S.Ct. at 1556. The Court went on to state that  '[t]he six carefully integrated civil enforcement provisions found in Sec. 502(a) of the statute as finally enacted ... provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.'  Id. (quoting Massachusetts Mutual Life Ins., 473 U.S. at 146, 105 S.Ct. at 3092) (emphasis in original). As applicable to the facts here, Sec. 1132 provides for suits against plan administrators for failure to comply with reporting requirements, but not against the professionals who assist administrators in preparing the reports. 29 U.S.C. Sec. 1132(a)(4), (c)(1)-(3). We decline to create federal common law expanding these remedies to authorize suits under ERISA against persons who fall beyond the statute's reach. 39 C. Inducement of Breach of Notification Requirements 40 The last of Pappas's attempts to breathe life into Count 4 of his complaint is his argument that defendants' misrepresentations induced Feinman and/or himself, the trustees of the IIG Plan, to breach the fiduciary obligations they owed to the Plan's beneficiaries. He alleges that defendants' false reports induced the Plan's trustees to pay an excessive and discriminatory amount to Feinman, thereby leaving insufficient funds to meet the Plan's obligations to the remaining participants. Brief at 31. The district court rejected this claim on two grounds. The first was that Pappas had not alleged that a breach of fiduciary duties had occurred. The second was that the complaint failed to allege that the breach of fiduciary duties was the result of a conspiracy between Hartt and one or both of the trustees, which the district court, relying on our decision in Thornton v. Evans, 692 F.2d 1064 (7th Cir.1982), reasoned was an essential element of a claim that a defendant induced an ERISA trustee to breach fiduciary duties. 41 In Thornton, this Circuit recognized that an ERISA beneficiary could maintain a cause of action against a non-fiduciary who had conspired with an ERISA fiduciary to breach fiduciary duties owed to the beneficiary. See Thornton, 692 F.2d at 1078; see also Whitfield v. Lindemann, 853 F.2d 1298, 1303 (5th Cir.1988), cert. denied, 490 U.S. 1089, 109 S.Ct. 2428, 104 L.Ed.2d 986 (1989); Freund v. Marshall & Ilsley Bank, 485 F.Supp. 629, 641-42 (W.D.Wis.1979). But see Nieto v. Ecker, 845 F.2d 868, 871 (9th Cir.1988) (allowing claims against non-fiduciaries insofar as they abetted fiduciaries in their breaches of duty depart[s] from plain meaning of the [ERISA] statute.). 2 42 We conclude that the district court was right to decide that Pappas had not pleaded the elements of a cause of action under the theory that he and Feinman had been induced to breach their fiduciary obligations by Hartt. 3 First, Pappas did not allege in his complaint that Hartt knowingly induced him to breach his fiduciary duties by making the excessive distribution to Feinman. All he alleges is that Hartt rendered incorrect advice and made misleading reports. Complaint p 35. Past cases involving the inducement of an ERISA trustee to breach fiduciary duties, however, require more than innocent but careless errors on the part of the non-fiduciary defendant. In Thornton, we observed that [a] necessary element of plaintiff's claims against the non-fiduciary defendants is that they conspired with the fiduciaries.... 692 F.2d at 1078 n. 34. Pappas has not alleged that a conspiracy existed between Feinman and Hartt to dupe Pappas, the co-trustee, into approving the excessive payment to Feinman. Other courts describe the requisite involvement by the non-fiduciary as knowingly participat[ing] with a fiduciary in a breach of fiduciary trust. Nieto v. Ecker, 845 F.2d 868, 874 (Wiggins, J., concurring); see also Whitfield, 853 F.2d at 1298 ([A]lthough Klepak was not a statutory fiduciary, he was, as the district court held, jointly liable with Lindemann as a nonfiduciary who knowingly participated in a breach of trust.) (citations omitted); Lowen v. Tower Asset Management, 829 F.2d 1209, 1220 (2d Cir.1987) ([P]arties who knowingly participate in fiduciary breaches may be liable under ERISA to the same extent as the fiduciaries.). Pappas has not alleged Hartt's knowing inducement either. Because the tortious mistakes that Pappas alleges are insufficient to state a claim for inducement by a non-fiduciary of a breach of fiduciary duties, the district court was right to reject this alternative theory supporting Count 4 of Pappas's complaint.