Opinion ID: 506205
Heading Depth: 1
Heading Rank: 3

Heading: counts 1, 3 and 4: the claims of fraudulent inducement

Text: 16 The district court held that arbitration could provide a full and fair remedy for the claims that Colteryahn was fraudulently induced to join and remain in the Fund, and therefore that MPPAA requires Colteryahn first to submit these claims to arbitration. We disagree. 17 The Fund points to no evidence that a MPPAA arbitrator, schooled in the technical application of MPPAA's statutory requirements, has any expertise in resolving claims of fraud and misrepresentation. Moreover, even if an arbitrator possessed the expertise to decide Colteryahn's fraud claims, it is plain that the statute neither grants the MPPAA arbitrator such power nor, more importantly, deprives the federal courts of the power to decide such claims in the first instance. Section 1401(a)(1), the only provision that might provide a basis for denying the federal courts jurisdiction that they otherwise could exercise, provides for arbitration of disputes concerning a determination made under sections 1381 through 1399. 29 U.S.C. Sec. 1401(a)(1). However, sections 1381 through 1399 are technical provisions, describing how and when withdrawal liability is to be assessed. For example, Sec. 1384 explains when a sale of an employer's assets constitutes a withdrawal from a plan. Section 1385, 1386 and 1388 describe how to adjust an assessment for a partial withdrawal. Section 1389 provides for certain de minimus exceptions. Section 1391 sets forth the several accepted methods for calculating the assessment itself. 8 18 These sections provide no basis for either adjusting or eliminating an assessment based on fraud or misrepresentation, and we have been cited to no legislative history or other authority even remotely suggesting any such basis. Moreover, not one of the statutory provisions even arguably implicated by Colteryahn's fraud claim falls within sections 1381-1399. See infra Parts III.B, III.C. Plainly, Colteryahn's dispute with the Fund does not concern any determination made under any of these provisions. Rather, Colteryahn's claim that it was fraudulently induced to become and remain a contributing member of the Western Pennsylvania Fund differs significantly from the types of highly technical MPPAA issues that the statute has assigned to arbitration. We therefore reject the district court's holding that it was without jurisdiction to hear that claim in its various forms.
19 The fact that MPPAA's arbitration requirement does not deprive the court of jurisdiction to hear the fraud and misrepresentation claims does not end the inquiry, for Colteryahn still must assert some affirmative basis for federal jurisdiction and point to particular substantive provisions or rights that the Fund has allegedly violated. 20 Colteryahn relies on 29 U.S.C. Sec. 1451, which creates federal jurisdiction over MPPAA disputes. The Fund, however, contends that Colteryahn's challenge is merely a thinly-disguised ERISA breach of fiduciary duty claim, and that Colteryahn, as an employer, cannot bring such a claim because only a participant, beneficiary, fiduciary, or the Secretary of Labor has standing to bring an ERISA breach of fiduciary duty suit. See, e.g., 29 U.S.C. Sec. 1132(a)(2) (1982) (A civil action may be brought ... by the Secretary [of Labor], or by a participant, beneficiary or fiduciary for appropriate relief [for breach of fiduciary duty]); Northeast Dep't ILGWU Health & Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund, 764 F.2d 147, 153 & n. 3 (3d Cir.1985) (holding that Sec. 1132 must be read narrowly and literally, and implying, in dicta, that a non-fiduciary employer does not have standing to sue under Sec. 1132); Tuvia Convalescent Center v. Nat'l Union of Hosp. & Health Care Employees, 717 F.2d 726, 729-30 (2d Cir.1983) (employer has no standing under Sec. 1132). The Fund's legal proposition is correct. However, we agree with Colteryahn that it has not attempted to assert a breach of fiduciary duty claim. 21 Fiduciary duties under ERISA, as a general rule, are owed to participants and beneficiaries only. See, e.g., Alton Memorial Hosp. v. Metropolitan Life Ins. Co., 656 F.2d 245, 249 (7th Cir.1981); see generally 29 U.S.C. Secs. 1101-1114 (Fiduciary Responsibility). Colteryahn, however, has not alleged that the defendants acted contrary to the best interests of the participants or beneficiaries, in violation of such a duty. Rather, Colteryahn has alleged fraud and misrepresentation causing Colteryahn itself to suffer an injury that is separate and distinct from any possible injury to others. There is no claim that the Fund acted in breach of a statutory fiduciary duty to act in the best interests of Colteryahn, nor could there be one, because the Fund had no such duty. Thus we reject the Fund's attempt to characterize Colteryahn's suit as a breach of fiduciary duty suit under Sec. 1132. 9 22 As we have noted, Colteryahn submits that we should look to Sec. 1451 for the jurisdictional basis for this suit. We agree. Section 1451(a)(1) provides, in pertinent part: 23 A plan fiduciary, employer, plan participant, or beneficiary, who is adversely affected by the act or omission of any party under this subtitle with respect to a multiemployer plan, ... may bring an action for appropriate legal or equitable relief, or both. 24 29 U.S.C. Sec. 1451 (1982). [T]his subtitle refers to Subtitle E of ERISA, 29 U.S.C. Secs. 1381-1453, i.e., MPPAA. The Fund's assessment of withdrawal liability, as well as its purported misrepresentations and concealments of the Fund's financial condition, plainly were act[s] or omission[s] ... under this subtitle with respect to a multiemployer plan. Thus, by the very terms of the statute, Colteryahn, as an employer, may bring an action for redress of these allegedly wrongful acts. Section 1451, however, merely provides jurisdiction over this claim; it does not define or create the claim itself. We therefore next must determine the substantive basis for such a claim.
25 Colteryahn advances two potential substantive bases for its claim. It points first to Sec. 1411, which provides both substantive and procedural criteria that must be satisfied in order to consummate a valid merger of two multiemployer plans under MPPAA. 10 Second, it relies upon federal common law. It is our obligation first to explore a possible statutory basis for the claim. For the reasons noted in the margin, such a claim (under Sec. 1411) may or may not be viable; 11 while Colteryahn is free to pursue this claim in the remanded proceeding, we do not rely upon it here. Rather, we rely upon the second ground. 26 It is by now well settled that federal courts are empowered to create a federal common law of pension plans under ERISA, in order to effectuate Congress' intent to preempt the area, see infra note 22, and create a comprehensive federal regulatory scheme. See Murphy v. Heppenstall Co., 635 F.2d 233, 237 (3d Cir.1980), cert. denied, 454 U.S. 1142, 102 S.Ct. 999, 71 L.Ed.2d 293 (1982); see also Northeast Dep't ILGWU Health & Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund, 764 F.2d 147, 157-58 (3d Cir.1985) (opinion of Becker, J.); Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923, 936-37 (3d Cir.1985); In re White Farm Equip. Co., 788 F.2d 1186, 1191 (6th Cir.1986) (federal court must develop its own rule of decision in cases involving employee welfare plans where ERISA itself furnishes no answer); 29 U.S.C. Sec. 1144(a) (1982). 27 It is axiomatic that, as a general rule, a party should not be allowed to profit from its own wrongs. We believe that this rule is particularly apposite when dealing with federally regulated pension plans, because Congress has emphasized 'the equitable character' of [these] plans, 29 U.S.C. Sec. 1001(c), [and therefore] we believe that equitable principles should be applied in this case. Reuther v. Trustees of Trucking Employees Welfare Fund, 575 F.2d 1074, 1078 (3d Cir.1978). 12 Assuming the truth of Colteryahn's allegations, the substantial withdrawal liability assessed upon Colteryahn in this case stemmed in large part (if not entirely) from fraudulent misrepresentations by the Fund, for which the federal common law of pension plans would provide a remedy. 13 Indeed, we would find it quite curious if Congress had given multiemployer plans the immense power that the Fund has exercised in this case--viz., the power to assess upon a withdrawing employer a substantial penalty while providing the employer with few defenses--yet did not intend to place some check on the conduct and practices of such plans. Moreover, we doubt that Congress intended that innocent employers, penalized by the fraudulent exercise of such powers, would be without remedy. Finally, given the predominant federal interest in the conduct of pension plans' affairs, any check on such power must be available in federal court. 28 The fraud alleged in this case presents a much more appropriate occasion for invocation of equitable principles than the cases that have permitted employers to gain restitution of improperly paid contributions when the fault for the improper payments lay solely with the contributing employer rather than with the plan. See, e.g., Airco Indus. Gases v. Teamsters Health and Welfare Pension Fund, 618 F.Supp. 943, 948, 951 (D.Del.1985) (Airco I ) (although an employer has no standing to sue under Sec. 1132(a), a cause of action for unjust enrichment to recover pension contributions mistakenly made to a plan will be permitted because such an action, equitable in nature, and developed in light of the policies of ERISA, is appropriate and 'necessary to fill in interstitially or otherwise effectuate the statutory pattern enacted in the large by Congress' ) (quoting Van Orman v. American Ins. Co., 680 F.2d 301, 312 (3d Cir.1982)) (other citations omitted); Whitworth Bros. Storage Co. v. Central States, Southeast and Southwest Areas Pension Fund, 794 F.2d 221, 233-36 (6th Cir.) (recognizing an equitable claim for restitution of mistaken pension contributions under federal common law), cert. denied, --- U.S. ----, 107 S.Ct. 645, 93 L.Ed.2d 701 (1986); Airco Indus. Gases v. Teamsters Pension Trust Fund, 668 F.Supp. 893, 900-01 (D.Del.1987) (fleshing out the cause of action recognized in Airco I, and collecting cases that have recognized similar causes of action), appeal docketed, No. 87-3642 (3d Cir. Sept. 28, 1987); contra Dime Coal Co. v. Combs, 796 F.2d 394, 399 n. 7 (11th Cir.1986) (Although the question is not well presented, ... we hold that no federal common law right to recovery of the disputed [mistaken] contributions at issue in this case exists.); McHugh v. Teamsters Pension Trust Fund, 638 F.Supp. 1036, 1048-49 (E.D.Pa.1986) (no cause of action for restitution of mistaken contributions); Crown Cork & Seal Co. v. Teamsters Pension Fund, 549 F.Supp. 307, 310-12 (E.D.Pa.1982) (same), aff'd mem., 720 F.2d 661 (3d Cir.1983). 29 We have no occasion in this case to consider ruling on the issue of the viability of a claim based on the employer's mistake. In this case the issue is fraud. 30 In sum, we hold that, under the federal common law of pension plans, Colteryahn, as a defrauded employer, may sue in federal court for the return of any withdrawal liability sums that were assessed as a result of a fraudulent inducement to join the Fund. Colteryahn may thus proceed with Counts 1, 3 and 4 of its complaint. 31