Court Opinion

ID: 1003632
Source: CourtListenerOpinion
Date Created: 2013-07-04 18:29:13.408683+00
Date Added: 2024-06-11T15:12:21.109523
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS
                  FOR THE FOURTH CIRCUIT

MARC E. LEBLANC, in his capacity           
as Administrator of and participant
in the Sheet Metal Workers’
National Pension Fund; JOHN
HARRINGTON, in his capacity as a
participant in the Sheet Metal
Workers’ National Pension Fund,
                 Plaintiffs-Appellants,
                  and
SHEET METAL WORKERS’ NATIONAL
PENSION FUND; ARTHUR MOORE, in
his capacity as Trustee of the Sheet
Metal Workers’ National Pension
Fund; ALAN J. CHERMAK, in his
capacity as National Pension Fund             No. 99-1866
Trustee; MATTHEW B. HERNANDEZ,
JR., in his capacity as National
Pension Fund Trustee; CLINTON O.
GOWAN, JR., in his capacity as
National Pension Fund Trustee;
RONALD PALMERICK, in his capacity
as National Pension Fund Trustee;
BRUCE STOCKWELL, in his capacity as
National Pension Fund Trustee,
                             Plaintiffs,
POPHAM, HAIK, SCHNOBRICH &
KAUFMAN, LIMITED,
               Intervenor-Plaintiff,
                   v.
                                           
2                         LEBLANC v. CAHILL

LAWRENCE A. CAHILL; KENNETH M.          
CAHILL; LARKEN, INCORPORATED;
LARKEN PROPERTIES, INCORPORATED,
             Defendants-Appellees,
                and
EDWARD WILLIAMS; RICK MANDRELL;
OAKLEIGH J. THORNE; THORNE
CONSULTANTS, INCORPORATED; JAMES
W. BECK; CHARLES E. UNDERBRINK;
EDWARD J. CARLOUGH; GORDON
JONES; CAVET SNYDER; JUNE M.
CARLOUGH, in her capacity as the
Administratrix of the estate of
                                        
Edward J. Carlough; JUDITH L.
BOYCE JONES, in her capacity as
representative of the estate of
Gordon Jones; PENNSYLVANIA
NATIONAL UNION FIRE INSURANCE
COMPANY, Pittsburgh, Pennsylvania,
                          Defendants,
ALEXIS M. HERMAN, Secretary of
Labor of the United States
Department of Labor,
                   Party in Interest.
                                        
            Appeal from the United States District Court
         for the Eastern District of Virginia, at Alexandria.
                Leonie M. Brinkema, District Judge.
                          (CA-95-1557-A)

                    Submitted: January 26, 2001

                      Decided: February 13, 2001

      Before WILKINSON, Chief Judge, and WIDENER and
                   MOTZ, Circuit Judges.
                         LEBLANC v. CAHILL                           3
Vacated and remanded by unpublished per curiam opinion.

                             COUNSEL

Stephen M. Rosenblatt, Alexandria, Virginia; John O’B. Clarke, Jr.,
HIGHSAW, MAHONEY & CLARKE, P.C., Washington, D.C., for
Appellants. Mark Fox Evens, M.M. Hogans, THELEN, REID &
PRIEST, L.L.P., Washington, D.C., for Appellees.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

                             OPINION

PER CURIAM:

   The Sheet Metal Workers’ National Pension Fund ("Fund") is a
multi-employer employee pension benefit plan, subject to regulation
under the Employee Retirement Income Security Act of 1974
("ERISA"), 29 U.S.C.A. §§ 1001-1461 (West 1999 & Supp. 2000).
Appellant Marc E. LeBlanc is a fiduciary and participant in the Fund.
Appellant John D. Harrington is a participant in the Fund. In 1994,
the Fund filed suit against thirteen Defendants seeking equitable and
legal relief for losses the Fund sustained as a result of a $15 million
investment. The district court dismissed the suit against those Defen-
dants charged with selling the investment to the Fund on the basis that
ERISA does not provide a cause of action against a nonfiduciary non-
party in interest for participating in an act prohibited by ERISA
§ 406(b), 29 U.S.C. § 1106(b) (1994). The Plaintiffs appealed.

   On appeal, this court held that ERISA § 502(a)(3), 29 U.S.C.
§ 1132(a)(3) (1994), allows the Appellants to bring a cause of action
against the Appellees for appropriate equitable relief on account of
their alleged knowing participation in a transaction prohibited by
ERISA § 406(b). The district court’s order dismissing the case against
4                          LEBLANC v. CAHILL
the Appellees was vacated and the case remanded for further proceed-
ings consistent with this court’s opinion. See LeBlanc v. Cahill, 153
F.3d 134, 151-55 (4th Cir. 1998).

   On remand, the remaining Defendants were Lawrence Cahill, Ken-
neth Cahill, Larken, Inc., and Larken Properties, Inc. (collectively "Sell-
ers").1 The Appellants charged that the Sellers induced Edward I.
Williams, Manager of Direct Investments for the Fund, and Rick
Mandrell, a consultant to the Fund, by offering a kickback or commis-
sion, to recommend that the Fund invest in Larken Hotels Limited
Partnership ("LHLP"). Under ERISA § 406(b)(3), a plan fiduciary is
prohibited from receiving any consideration for his own personal
account from any party dealing with such plan in connection with a
transaction involving the assets of the plan.

   The district court found that Williams received consideration from
James W. Beck, who had agreed to assist the Sellers by locating
investors for LHLP.2 Accordingly, the district court found that Wil-
liams, as a fiduciary to the Fund, had violated ERISA § 406(b)(3).

   With regard to the Cahills and Larken, Inc., the district court found
that there was no credible evidence that those parties were actually
aware that Williams was a fiduciary to the Fund. The court did not
find credible testimony from Beck, Williams, and Charles Under-
brink, another person assisting the Cahills in marketing LHLP, that
the Cahills were informed of Williams’ status as Manager of Direct
Investments for the Fund. In addition, the court rejected the Appel-
lants’ argument that the Cahills and Larken, Inc., were aware of the
facts that made Williams a fiduciary to the Fund by stating that the
Appellants "failed to demonstrate that the Cahills were actually aware
of Williams’ status as a fiduciary." (J.A. at 145). The court further
found that the Cahills did not have actual knowledge that Williams
breached his fiduciary duty. In addition, the court rejected the Appel-
lants’ argument that because Beck was an agent for the Cahills, it
should impute his actions and knowledge to them. The court found
    1
    The Cahills have an ownership interest in Larken, Inc., and Larken
Properties, Inc.
  2
    Beck also had an ownership interest in Larken Properties, Inc.
                          LEBLANC v. CAHILL                           5
that although Beck was an agent for the Cahills, he was "acting at
least as much for his own benefit as for that of the Cahills and Larken,
Inc." and he "was wearing so many hats during this time period,
including in his interactions with Williams, it would be inappropriate
to impute his knowledge and actions to the Cahills and Larken, Inc.
under these circumstances."3 (J.A. at 149-50).

   The district court further rejected the Appellants’ argument that
because Beck and Williams engaged in a prohibited transaction, the
monies paid by the Fund were subject to a constructive trust and the
Defendants bore the burden of showing that they were bona fide pur-
chasers by having paid value without notice of the breach. According
to the court, the burden was on the Plaintiffs to show that there was
a prohibited transaction and the Defendants knowingly participated in
the transaction. The court noted that the Appellants were attempting
to avoid having to prove that the Defendants were liable for their
knowing participation in the prohibited transaction by invoking a
burden-shifting regime that applies to a remedy for the cause of
action. The court found that there was no evidence that the Cahills
and Larken, Inc., knew about the prohibited transaction and know-
ingly participated in it.

   As for equitable relief as a result of Larken Properties, Inc.’s
("LPI") participation in Williams’ breach, the district court found that
LPI was liable for $1,187,348.51 in damages. The court subtracted
from that amount the present value of payments Beck and Underbrink
agreed to reimburse pursuant to a settlement agreement. The Appel-
lants filed a motion under Rule 59(e) of the Federal Rules of Civil
Procedure challenging the court’s decision to set-off the damages
award, which the court denied.

   While the appeal was pending in this court, the Supreme Court
issued an opinion in Harris Trust & Sav. Bank v. Salomon Smith Bar-
ney, Inc., 530 U.S. 238, 120 S. Ct. 2180 (2000). We granted the
Appellants’ motion to file a supplemental brief on the relevance of
this case.
  3
   The court found that Larken Properties, Inc., had knowledge of Wil-
liams’ breach and knowingly participated in the breach because Beck and
Underbrink handled the day-to-day operations of that business.
6                         LEBLANC v. CAHILL
   In Harris Trust, Salomon Smith Barney, Inc. ("Salomon"), was a
party in interest to an ERISA pension plan and charged with entering
into a transaction prohibited by ERISA § 406(a) and not exempted by
ERISA § 408. The Seventh Circuit held that ERISA § 502(a)(3) does
not provide a private cause of action against a nonfiduciary for know-
ing participation in a fiduciary’s breach of duty. The Supreme Court
reversed, finding that ERISA § 502(a)(3) authorizes actions for "ap-
propriate equitable relief," for the purpose of redressing any ERISA
violations. The Court found that there is "no limit . . . on the universe
of possible defendants." Harris Trust, 530 U.S. at ___, 120 S. Ct. at
2187.

   The Supreme Court rejected Salomon’s argument that suits under
ERISA § 502(a)(3) would be brought against innocent third parties
rather than the true wrongdoers. The Court stated that:

    [t]he common law of trusts, which offers a "starting point
    for analysis [of ERISA] . . . [unless] it is inconsistent with
    the language of the statute, its structure, or its purposes,"
    Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 447, 119 S.
    Ct. 755, 142 L. Ed.2d 881 (1999) (internal quotation marks
    omitted), plainly countenances the sort of relief sought by
    petitioners against Salomon here. As petitioners and amicus
    curiae the United States observe, it has long been settled
    that when a trustee in breach of his fiduciary duty to the
    beneficiaries transfers trust property to a third person, the
    third person takes the property subject to the trust, unless he
    has purchased the property for value and without notice of
    the fiduciary’s breach of duty. The trustee or beneficiaries
    may then maintain an action for restitution of the property
    (if not already disposed of) or disgorgement of proceeds (if
    already disposed of), and disgorgement of the third person’s
    profits derived therefrom.

Id. at 2189. Thus, the Court incorporated common-law remedial prin-
ciples to an action for equitable relief. Id. at 2190. The Court further
stated that:

    [i]t also bears emphasis that the common law of trusts sets
    limits on restitution actions against defendants other than the
                           LEBLANC v. CAHILL                            7
     principal "wrongdoer." Only a transferee of ill-gotten trust
     assets may be held liable, and then only when the transferee
     (assuming he has purchased for value) knew or should have
     known of the existence of the trust and the circumstances
     that rendered the transfer in breach of the trust. Translated
     to the instant context, the transferee must be demonstrated
     to have had actual or constructive knowledge of the circum-
     stances that rendered the transaction unlawful. Those cir-
     cumstances, in turn, involve a showing that the plan
     fiduciary, with actual or constructive knowledge of the facts
     satisfying the elements of a § 406(a) transaction, caused the
     plan to engage in the transaction. Id.

   Naturally, the district court in the instant case did not have the ben-
efit of the Supreme Court’s opinion in Harris Trust when it found that
the Cahills and Larken, Inc., were not liable to the Appellants. Based
on Harris Trust, it is evident that the court used an improper standard
to determine whether the Appellants were entitled to relief from the
Cahills and Larken, Inc.

   Accordingly, we vacate the court’s judgment and remand for fur-
ther proceedings consistent with this opinion and the Supreme Court’s
holding in Harris Trust. We dispense with oral argument because the
facts and legal contentions are adequately presented in the materials
before the court and argument would not aid the decisional process.

                                         VACATED AND REMANDED