Opinion ID: 410958
Heading Depth: 2
Heading Rank: 2

Heading: Plaintiffs' Status as Fund Representatives

Text: 46 The second alternative ground propounded by the district court for dismissing the second amended complaint filed on July 14, 1980, was that plaintiffs failed to satisfy the prerequisites of Fed.R.Civ.P. 23.1 for a derivative action. In reaching this conclusion, the district court first concluded that plaintiffs could not maintain an individual action against non-fiduciary parties but rather must sue either as representatives of the Fund in a derivative action or as representatives of the beneficiaries in a class action. The court then noted that plaintiffs had dropped or waived their class action claim since the second amended complaint stated that plaintiffs sued as representatives of the Fund. But after applying Rule 23.1 to the complaint, the court concluded that plaintiffs failed to demonstrate that the trustees are unwilling to sue [American, Evans and Klekamp], and that [o]ther requirements of Rule 23.1 [were] likewise unsatisfied by the affidavit attached to the [complaint]. Order of Nov. 24, 1980, at 3-4. 47 ERISA is a comprehensive statute intended by Congress to federalize the law relating to employee insurance and benefit plans falling within its jurisdiction. See Wadsworth v. Whaland, 562 F.2d 70, 76-77 (1st Cir.1977), cert. denied, 435 U.S. 980, 98 S.Ct. 1630, 56 L.Ed.2d 72 (1978); 29 U.S.C. Sec. 1144(a) (1976). As with many like statutes, Congress obviously did not expressly address all the issues that might arise. Therefore, we ought, where unanticipated problems are presented, to develop substantive legal principles that accommodate the purposes of the statute. See, e.g., Amato v. Bernard, 618 F.2d 559 (9th Cir.1980); Gilliam v. Edwards, 492 F.Supp. 1255 (D.N.J.1980); Shaw v. Kruidenier, 470 F.Supp. 1375 (S.D.Iowa 1979), aff'd 620 F.2d 307 (8th Cir. 1980). Our recognition in Fremont that a remedy lies under ERISA against non-fiduciaries who conspire with fiduciaries in breach of ERISA-imposed duties is a necessary development of the law of ERISA. 48 In the instant case, we must also determine the procedural requirements of a suit under ERISA against non-fiduciary parties for conspiracy with fiduciaries in schemes which violate statutory trust obligations. ERISA does not provide an explicit answer to these procedural questions, 35 and application of traditional trust law principles may, in some instances, conflict with Congress' desire to eliminate barriers to the protection and enforcement of rights in ERISA-covered benefit plans. 36 We agree with the district court that these plaintiffs, who seek to recover damages from non-fiduciary defendants for their role in a conspiracy directed against the Fund as a whole in breach of ERISA obligations, must sue either as representatives of the Fund in a derivative action or as representatives of the beneficiaries in a class action. The procedural safeguards of Fed.R.Civ.P. 23 and 23.1, coupled with the court's power to consolidate actions, can avoid multiple litigation while assuring beneficiaries of a forum to adjudicate claims of fraud, mismanagement and breach of fiduciary duties involving the Fund as a whole. Such claims touch the interest of every beneficiary. 37 We must therefore determine whether plaintiffs in this action have satisfied the prerequisites of Rule 23.1 to the maintenance of a derivative action. 49 The district court concluded that the plaintiffs failed to comply with Rule 23.1 because they did not make demand on the trustees to sue any of the defendants and did not offer an adequate reason for their failure to make demand. But the court's conclusion in this respect, at least as it relates to defendants American, Evans and Klekamp, stands in sharp--and unexplained--contrast to its decision of June 30, 1980. On that date, the court concluded, in denying motions to dismiss the plaintiffs' February 19 complaint, that [s]ince the trustees have long since sued the persons whom they believe to be responsible for violation of certain fiduciary duties in Baker ... and have not joined [American, Evans and Klekamp] in that case, we find it unnecessary to require plaintiffs herein to make a formal demand upon the trustees to sue these defendants. Order of June 30, 1980, at 3. 50 We believe that the district court was right the first time. The purpose of requiring beneficiaries to demand action from the trustees before instituting suit is to notify the trustees of a potential claim, so they may investigate and take action, before a court intervenes at the beneficiaries' request. Cf. Brody v. Chemical Bank, 517 F.2d 932 (2d Cir. 1975); Weiss v. Sunasco, Inc., 316 F.Supp. 1197 (E.D.Pa.1970). Here, the trustees were aware of the facts and of the involvement of the present defendants in the actions which gave rise to the trustees' own lawsuit. But the trustees chose not to name these defendants (apparently with the exception of Kleindienst) as parties. Therefore, it would be futile to make a demand on the trustees before filing suit. Plaintiffs' second amended complaint, filed on July 14, 1980, in fact asserts the failure of the trustees to sue these defendants in their own action as a ground for excusing failure to make a formal demand on the Fund's trustees. We believe this assertion is sufficient under both Rule 23.1 and ERISA to excuse formal demand upon the trustees as a prerequisite to plaintiffs' suit here. 38 51 The district court also concluded that the plaintiffs' second amended complaint, filed on July 14, 1980, was not properly verified as required by Rule 23.1. But the court did not explain or even suggest what it found to be the shortcomings of the verification statement attached to the complaint. 39 We believe that the complaint was properly verified. The purpose of the verification requirement is to prevent the use of the judicial process for strike suits and collusive actions and to insure that plaintiffs or their attorneys have investigated the charges and concluded that they possess merit. See Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 86 S.Ct. 845, 15 L.Ed.2d 807 (1966); Porte v. Home Federal Savings and Loan Association, 409 F.Supp. 752 (N.D.Ill.1976). The verification statement of plaintiffs' counsel which was filed with the July 14 second amended complaint fully satisfies these purposes. The statement recites that the complaint is based (1) on information obtained from public filings in other lawsuits, (2) published government reports and (3) information in the media concerning the activities of these defendants. In a case such as the one before us, where the acts constituting fraud and conspiracy are peculiarly within the defendants' knowledge, this form of verification is sufficient under Rule 23.1. See In re National Student Marketing Litigation, 413 F.Supp. 1156 (D.D.C.1976). 52