Opinion ID: 608804
Heading Depth: 3
Heading Rank: 2

Heading: Whether Appellants May Sue to Enforce the Consent Decree

Text: 29 Although the District Court plainly had jurisdiction to enforce the terms of the Consent Decree, a slightly more difficult question remains: whether appellants, who were not parties to the Consent Decree, may nevertheless sue to enforce its terms. We hold that because they are direct beneficiaries of a trust created by the Consent Decree, they may do so. 30 We begin by noting that it is already recognized that intended third party beneficiaries of a consent decree have standing to enforce the decree. Hook, 972 F.2d at 1014; accord Berger v. Heckler, 771 F.2d 1556, 1565-66 (2d Cir.1985). This is so because consent decrees are generally construed according to the basic principles of contract law, see United States v. ITT Continental Baking Co., 420 U.S. 223, 238, 95 S.Ct. 926, 935, 43 L.Ed.2d 148 (1975), and it is a fundamental principle of contract law that parties to a contract may create enforceable contract rights in a third party beneficiary. See, e.g., RESTATEMENT (SECOND) OF CONTRACTS § 304 (1981); In re Spong, 661 F.2d 6, 10 (2d Cir.1981) (In a third party beneficiary contract, benefits flow to both the promisee and the third party, and either may sue to enforce the contract.). 31 The principle that an intended third party beneficiary may sue to enforce a consent decree naturally extends, we think, to allowing the beneficiary of a trust created by a consent decree to sue for enforcement of the consent decree, even where that beneficiary was not a party to the consent decree. In many cases it is immaterial whether a trust is created or a contract is made for the benefit of a third party.... [because] the beneficiary of a contract, as well as the beneficiary of a trust, has rights which he can enforce. 1 AUSTIN W. SCOTT, THE LAW OF TRUSTS § 14.3 (3d ed. 1967). Just as an intended third party beneficiary may sue to enforce a contract, it is equally fundamental that the beneficiary of a trust may maintain a suit to compel the trustee to perform his duties as trustee or to redress a breach of trust. See RESTATEMENT (SECOND) OF TRUSTS § 199 (1959). 32 The issue thus joined is whether the Fagerland Consent Decree created a trust with appellants as beneficiaries. Under the terms of the Consent Decree, the Pan Am SAP funds held in escrow pending the outcome of the Fagerland litigation were to be transferred to a trust account to be established by defendant ALPA, which will act as trustee and agent for distribution of this fund to the beneficiaries. Consent Decree at 7 (emphasis added). ALPA's mandatory duties as trustee and agent were first to distribute a specified portion of the funds to the Fagerland plaintiffs, and then to distribute all remaining funds to eligible pilots [including appellants] who are not plaintiff class members pursuant to the instructions of the Pan Am MEC. Id. at 8-11 (emphasis added). There is no indication in the Consent Decree that ALPA had any right to use the funds for any purpose of its own. 33 After examining these features of the Consent Decree, we conclude with little difficulty that the Consent Decree created a trust, with ALPA as trustee and appellants (among others) as the beneficiaries. A trust is 34 a fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it. 35 RESTATEMENT (SECOND) OF TRUSTS, supra, § 2; see also, e.g., United States v. Kingsley, 851 F.2d 16, 20-21 (1st Cir.1988) (relying on Restatement definition to determine whether a trust has been created); Coleman v. Golkin, Bomback & Co., Inc., 562 F.2d 166, 168-69 (2d Cir.1977) (same). The Fagerland Consent Decree establishes just the sort of trust relationship described in the Restatement. Pursuant to the Consent Decree, ALPA held the title to the Pan Am SAP funds for the benefit of the Fagerland plaintiffs and the other Pan Am pilots, including appellants, eligible to receive those funds. Further, the Consent Decree expressly imposed on ALPA the duty of distributing the settlement payments to Pan Am pilots who had participated in the A Plan. Finally, we think it is clear that the language of the Consent Decree manifests the requisite intention to create a trust. See RESTATEMENT (SECOND) OF TRUSTS, supra, § 24(1) (necessary manifestation of intention to create a trust may be made by written words). An expressed intention to create a trust may be revealed by, inter alia, the articulation of the essential elements of a trust, see id. § 2(1) cmt. h (essential elements of a trust are a trustee, a beneficiary and a trust property), and the specifics necessary to implement and administer the trust. 76 AM.JUR.2D Trusts § 65 (1992). The Consent Decree sets out the elements of a trust, and makes clear the specifics for implementing and administering the trust; we are thus satisfied that a trust was indeed created. And because appellants are beneficiaries of that trust, they may sue to enforce the duties owed to them by ALPA as trustee. 36 ALPA contends, unpersuasively, that the Fagerland Consent Decree did not create a trust because, rather than establishing any enforceable duties, it conferred upon ALPA the sole discretion to distribute the Pan Am SAP funds. Brief for Appellee at 22. ALPA points out, purportedly in its favor, that the Consent Decree provides that the available Pan Am SAP sums shall be distributed to eligible pilots ... pursuant to the instructions of the Pan Am MEC. Consent Decree at 9, 11 (emphasis added). This language provides no comfort to ALPA. The mandatory shall makes clear that the disputed sums must be distributed to the eligible pilots, including appellants. The Consent Decree merely leaves ALPA the discretion to choose an appropriate arrangement for distributing those sums among the eligible pilots. This discretion is hardly remarkable as a matter of trust law; the terms of a trust often give the trustee discretion in carrying out a duty, while leaving the duty itself mandatory. See 3 SCOTT, supra, § 187 ([W]here [the trustee] is directed to exercise a power, the time and manner of its exercise may be left to his discretion.). Absolutely nothing in the language quoted by ALPA, or in any other part of the Consent Decree, confers on ALPA the right to use any of the SAP funds for its own purposes. We therefore reject ALPA's contention that the Consent Decree did not manifest an intention to create enforceable duties. 37 Our ruling that appellants may maintain an action to enforce the Consent Decree is supported by FED.R.CIV.P. 71. Rule 71 provides in relevant part that [w]hen an order is made in favor of a person who is not a party to the action, that person may enforce obedience to the order by the same process as if a party.... The courts that have allowed non-parties to sue to enforce a consent decree or other court order as intended third party beneficiaries have relied in large part on Rule 71. See, e.g., Hook, 972 F.2d at 1014; Washington Hosp. v. White, 889 F.2d 1294, 1299 (3d Cir.1989). While the precise contours of Rule 71 may remain unclear, we think that the Rule comfortably applies to appellants in this case. 4 38 Although the foregoing analysis disposes of the question of whether appellants may bring this action, we pause to distinguish some language from a Supreme Court case that may, at first glance, be interpreted as running against our decision. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). In Blue Chip Stamps, the Court stated that a well-settled line of authority from this Court establishes that a consent decree is not enforceable directly or in collateral proceedings by those who are not parties to it even though they were intended to be benefited by it. Id. at 750, 95 S.Ct. at 1932. Despite this seemingly sweeping prohibition on suits by non-parties to a consent decree, we, like the Ninth Circuit, read Blue Chip Stamps to prohibit[ ] only incidental third party beneficiaries from suing to enforce a consent decree. Hook, 972 F.2d at 1015; see also Berger, 771 F.2d at 1565 ([W]e think that [Blue Chip Stamps ] was not intended to preclude nonparties from intervening to enforce a consent decree where otherwise authorized by the federal rules of civil procedure.). Blue Chip Stamps, therefore, is not applicable to this case. 39 Five considerations lead us to conclude that the Blue Chip Stamps language should be read narrowly. First, the primary question before the Court in Blue Chip Stamps was far afield from the issue we face today: whether a consent decree requiring one party to offer stock to a third party was sufficient under federal securities laws to make the third party a purchaser or seller who would have standing to sue pursuant to Rule 10b-5 of the Securities and Exchange Commission. 40 Second, to the extent that Blue Chip Stamps is understood as involving a private party's attempt to bring an action under a consent decree that benefited it, see Hook, 972 F.2d at 1015, it bears noting that the consent decree resulted from a civil antitrust action brought by the Government. Only the Government can seek enforcement of its consent decrees, see, e.g., Dahl, Inc. v. Roy Cooper Co., Inc., 448 F.2d 17, 20 (9th Cir.1971); therefore, even if the Government intended its consent decree to benefit a third party, that party could not enforce it unless the decree so provided. Given this rule, the language against third party enforcement in Blue Chip Stamps must be read in context and with caution, because that case involved a Government-obtained consent decree. Third, and closely related, our interpretation of Blue Chip Stamps accords with the basic contract principle that third party beneficiaries of a Government contract are generally assumed to be merely incidental beneficiaries, and may not enforce the contract absent clear intent to the contrary. See RESTATEMENT (SECOND) OF CONTRACTS, supra, § 313(2) & cmt. a. The private parties in Blue Chip Stamps were therefore incidental third party beneficiaries, and had no enforcement rights under the consent decree. See Hook, 972 F.2d at 1015 (adopting this analysis). 41 Fourth, were we to construe Blue Chip Stamps broadly, we would eviscerate Rule 71 in the context of consent decree enforcements. The Court in Blue Chip Stamps did not even mention Rule 71, and we are not prepared, without a clearer signal, to assume that the Court meant to narrow Rule 71 so significantly. See Hook, 972 F.2d at 1015. Fifth, the authorities cited by the Court in Blue Chip Stamps do not stand for the extremely broad proposition that the Court's language might be read to suggest. See Blue Chip Stamps, 421 U.S. at 750, 95 S.Ct. at 1932 (citing United States v. Armour & Co., 402 U.S. 673, 91 S.Ct. 1752, 29 L.Ed.2d 256 (1971); Buckeye Coal & Ry. Co. v. Hocking Valley Ry. Co., 269 U.S. 42, 46 S.Ct. 61, 70 L.Ed. 155 (1925)). In Armour, the Court held that a corporation did not violate the terms of a particular consent decree to which it was not a party by acquiring another corporation that was a party to the consent decree. No language in that opinion suggests that non-parties intended to be benefited by a consent decree cannot sue to enforce the decree. In Buckeye, the Court refused to allow a coal company to seek enforcement of a consent decree to which it was not a party, but it appears that the coal company was not an intended beneficiary of the consent decree. 42 In sum, we conclude, as did the court in Hook, that the Blue Chip Stamps language regarding enforcement of consent decrees is best read as prohibiting, at most, suits to enforce consent decrees by incidental third party beneficiaries, or, perhaps, by third party beneficiaries of a consent decree obtained by the Government. Blue Chip Stamps is not relevant here, and appellants are permitted to bring this action.