Court Opinion

ID: 8946130
Source: CourtListenerOpinion
Date Created: 2022-11-27 08:23:53.302154+00
Date Added: 2024-06-11T17:09:51.289797
License: Public Domain

BAUER, Chief Judge,
dissenting.
I am unable to agree with the court’s interpretation of the legislative history underlying the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Ch. 18, or the expansive role which the court assigns the Department of Labor (DOL) under that *700statutory scheme. In this case, whether the Secretary of Labor’s (Secretary) claim in Donovan is barred by the doctrine of res judicata turns upon the statutory role of the DOL in bringing an ERISA action. It is the scope of this statutory function which defines the legal interest of the DOL and thus, determines whether res judicata applies where a private claimant has proceeded to a court-approved settlement of the identical claim involving the same parties as that now brought by the Secretary of Labor.
I. RES JUDICATA
Under res judicata, “a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.” Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 414, 66 L.Ed.2d 308 (1980); Beard v. O’Neal, 728 F.2d 894, 896 (7th Cir.1984). Strict identity of the parties is not necessary to achieve privity. Privity applies to successive parties who adequately represent the same legal interests. Southwest Airlines Co. v. Texas Internat’l Airlines, Inc., 546 F.2d 84, 95 (5th Cir.), cert. denied, 434 U.S. 832, 98 S.Ct. 117, 54 L.Ed.2d 93 (1977); Jefferson School of Social Science v. Subversive Activities Control Bd., 331 F.2d 76, 83 (D.C.Cir.1963); see generally TRW, Inc. v. Ellipse Corp., 495 F.2d 314, 317-18 (7th Cir.1974). The conclusion compelled by a fair reading of the ERISA legislation is that the Secretary does represent the same legal interests that are involved in Dutchak and Sullivan and therefore, is barred from bringing this action under the doctrine of res judicata.
Congress enacted ERISA in 1974 to promote the well-being and security of employees and their dependents by protecting their interests in employee benefit plans. 29 U.S.C. § 1001(a); Leigh v. Engle, 727 F.2d 113, 139 (7th Cir.1984). This congressional purpose is effectuated “by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the federal courts,” 29 U.S.C. § 1001(b). To this end, Congress required that “all assets of an employee benefit plan be held in trust by one or more trustees.” 29 U.S.C. § 1103(a). Every such trustee is a “fiduciary,” 29 U.S.C. § 1002(21)(A), subject to comprehensive standards of conduct. 29 U.S.C. §§ 1104-1113. ERISA prescribes, for example, that every plan fiduciary shall discharge his duties with respect to a plan “solely in the interest of the participants and beneficiaries” and with the “care, skill, prudence and diligence” that a reasonable person “familiar with such matters” would employ if acting under similar circumstances. 29 U.S.C. § 1104(1)(1).
ERISA expressly authorizes participants, beneficiaries, and the Secretary of Labor to enforce the Act’s fiduciary standards. 29 U.S.C. § 1132(a)(2), (3) and (5). Specifically, participants, beneficiaries, and the Secretary may bring suit in federal court and hold fiduciaries “personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary....” 29 U.S.C. §§ 1109(a), 1132(a)(2). A breaching fiduciary is also subject to other appropriate “equitable or remedial relief,” including removal from his or her position as a fiduciary. Id.
The enforcement provisions of ERISA are intended to provide the Secretary, as well as participants and beneficiaries, with broad, flexible remedies to redress or prevent statutory violations. See, e.g., S. Rep. No. 383, 93d Cong., 1st Sess. 8, 105 (1973), reprinted in LEGISLATIVE HISTORY OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, 94th Cong., 2d Sess. 1076, 1173 (1976) (hereinafter cited as LEGISLATIVE HISTORY); H. Rep. No. 533, 93d Cong., 1st Sess. 17, 26 (1973), reprinted in LEGISLATIVE HISTORY at 2364, 2373; Leigh v. Engle, supra, 727 F.2d at 139; Donovan v. Mazzola, 716 F.2d 1226, 1235, 1239-40 n. 9 (9th Cir.1983), cert. denied, 464 U.S. 1040, 104 S.Ct. 704, 79 L.Ed.2d 169 (1984). The fiduciary *701standards “must be enforced with ‘uncompromising rigidity.’ ” NLRB v. Amax Coal Co., 453 U.S. 322, 329-34, 101 S.Ct. 2789, 2794-96, 69 L.Ed.2d 672 (1981), quoting from Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 546 (1928); see also Eaves v. Penn, 587 F.2d 453, 462 (10th Cir.1978); Marshall v. Snyder, 572 F.2d 894, 901-02 (2d Cir.1978).
The majority argues that Congress intended the Secretary of Labor to bear the primary responsibility for enforcing ERISA, both to protect the rights of plan participants and beneficiaries and to further the broader public policy goals set forth in the statute. The majority opinion contends that this preeminent role is evident from an examination of ERISA and its predecessor legislation, the Welfare and Pension Plan Disclosure Act, Pub. L. 85-836, 72 Stat. 997 (repealed 1976).
Contrary to the court’s assertions, however, the legislative history of ERISA demonstrates that section 502(a)(2) of ERISA, 29 U.S.C. § 1132(a)(2), was intended to grant both private parties and the Secretary equal standing to bring an action on behalf of fund beneficiaries. Repeatedly, Congress expressed its belief that the chief weakness of the Welfare and Pension Plans Disclosure Act, the predecessor act governing pension funds, was its sole reliance upon “the initiative of the individual employee to police the management of his plan.” S. Rep. No. 127, 93d Cong., 1st Sess. 4 (1973), reprinted in LEGISLATIVE HISTORY at 613; H. Rep. No. 533, 93d Cong., 1st Sess. 4 (1973), reprinted in LEGISLATIVE HISTORY at 2351; 120 Cong. Rec. 3978 (1974) (“Employee Benefit Security Act of 1974: Material Explaining H.R. 12906 Together With Supplemental Views,” introduced by Representative Perkins), reprinted in LEGISLATIVE HISTORY at 3295; 120 Cong. Rec. 4281 (1974) (remarks of Representative Gaydos), reprinted in LEGISLATIVE HISTORY at 3377; 119 Cong. Rec. 147 (1973) (remarks of Senator Ribicoff), reprinted in LEGISLATIVE HISTORY at 207; 120 Cong. Rec. 19957 (1974) (remarks of Senator Ribicoff), reprinted in LEGISLATIVE HISTORY at 4811. It was this concern which led Congress to grant the Secretary enforcement powers under section 502(a)(2) of ERISA co-extensive with those accorded private litigants. The “Civil Enforcement” provision of ERISA provides that “[a] civil action may be brought (1) ... by a participant or beneficiary ... [or] (2) by the Secretary....” 29 U.S.C. § 1132. There is nothing in the statutory language which grants any more preeminent right of action to the Secretary than to private litigants.
The legislative hearings, reports, and debates variously refer to the Secretary’s role as one of “watchdog,” “guardian,” or “protect[or]” of the private beneficiaries. S.Rep. No. 634, 92d Cong., 2d Sess. 109 (1972); Welfare and Pension Plan Legislation: Hearings on H.R. 2 and H.R. 462 Before the General Subcommittee on Labor of the House Committee on Education and Labor, 93d Cong., 1st Sess. 373 (1973) (statement of Bernard E. Nash, National Retired Teachers Association an American Association of Retired Persons); 119 Cong.Rec. 30011 (1973) (remarks of Senator Beall), reprinted in LEGISLATIVE HISTORY at 1620. But the legislative record clearly reflects that Congress intended the Secretary to act as a representative of fund beneficiaries. Plan participants, beneficiaries, or the Secretary of Labor on behalf of the participants and beneficiaries are allowed to bring civil actions to redress breaches of a fiduciary’s responsibility or to remove a fiduciary who has failed to carry out his duties. H.R. Rep. No. 533, 93d Cong., 1st Sess. 20 (1973), reprinted in LEGISLATIVE HISTORY at 2367; 120 Cong. Rec. 3979 (1974) (“Employee Benefit Security Act of 1974: Material Explaining H.R. 12906 Together with Supplemental Views,” introduced by Representative Perkins), reprinted in LEGISLATIVE HISTORY at 3299.
Thus, in granting the Secretary enforcement powers in Section 1132 I believe Congress intended that the Secretary’s interest be the same as that of the participants and beneficiaries who also had enforcements powers under Section 1132. The Secre*702tary’s only public interest enforceable under Section 1132 is that the rights of the participants and beneficiaries of a given plan are protected.
Recent statements by the Supreme Court in Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985), apply with particular force here. In Massachusetts Mutual the Court was asked to interpret the civil enforcement provisions of 29 U.S.C. § 1132. In holding that Congress did not intend to authorize remedies not expressly incorporated in ERISA, the Court stated:
Inclusion of the Secretary of Labor is indicative of Congress’s intent that actions for breach of fiduciary duty be brought in a representative capacity on behalf of the plan as a whole. Indeed, the common interest shared by all four classes is in the financial integrity of the plan.
105 S.Ct. at 3090-91 n. 9.
While Congress provided the Secretary with far-reaching authority to monitor plan activities, this authority is not an indicium of Congress’s intent that the Secretary’s enforcement authority under Section 1132 be broader than the participants’ and beneficiaries’ authority. One cannot read these powers in isolation from the rest of ERISA, but must construe them in the context of the entire statute. Richards v. United States, 369 U.S. 1, 11, 82 S.Ct. 585, 592, 7 L.Ed.2d 492 (1962).
The Act requires extensive disclosure to the Secretary by plan administrators of financial data and other information relating to a plan. 29 U.S.C. § 1021(b), 1024(a). ERISA also provides the Secretary with broad investigatory powers to monitor plans, including the authority to conduct “spot” audits on the premises of the plan and to subpoena witnesses, id. § 1134, and provides for cooperation between the Secretary and other government agencies in carrying out the Secretary’s responsibilities. Id. § 1136. Rather than indicating an intent that the Secretary act independent of the interests of plan participants and beneficiaries, these provisions are fully consistent with the Congressional intent that the Secretary act on behalf of the participants and beneficiaries. These investigatory powers are necessary so that the Secretary is fully informed about the plan and can monitor its implementation consistent with the interests of the participants and beneficiaries — and nothing more.
Additionally, the majority relies on Donovan v. Cunningham, 716 F.2d 1455 (5th Cir.1983), cert. denied, 467 U.S. 1251, 104 S.Ct. 3533, 82 L.Ed.2d 839 (1984), to support its argument that when bringing suits under Section 1132, the Secretary is suing to safeguard “the broader public interest” as well as to seek relief for plan participants and beneficiaries. Cunningham involved an ERISA suit by the Secretary, followed ten months later by a private class upon the same grounds in a different jurisdiction. The Secretary lost at the trial level and, while that case was on appeal, the private action was settled. The Secretary was not a party to the private action and in no way participated in the settlement.
The majority’s reliance on Cunningham is misplaced. In determining that the doctrine of res judicata or collateral estoppel did not bar the Secretary’s appeal, the Cunningham court relied upon “the general principle of law that the United States will not be barred from independent litigation by the failure of a private plaintiff.” 716 F.2d at 1462 (citing United States v. East Baton Rouge Parish School Board, 594 F.2d 56, 58 (5th Cir.1979)). The Fifth Circuit specifically noted, however, that it was “not considering]” whether “a prior private settlement may limit the scope of the relief that the government may seek on behalf of settling parties,” id. at 1462 n. 10, and remanded the case for the express purpose of determining whether the private action had such a preclusive effect.
The Fifth Circuit also noted two aspects of the Cunningham case which are clearly distinguishable from this case. First, the court in Cunningham noted that the private plaintiffs’ interests were only in recouping their own economic losses, where*703as the Secretary sought in Cunningham to determine the legality of specific conduct and to guard against future losses to the plan. This is clearly distinguishable from the CSPF settlement in this case wherein the legality of the trustees’ conduct, re-coupment of past losses, and the future integrity of the plan were clearly at issue and negotiated extensively in the course of the settlement. Second, the Fifth Circuit noted that “[although the record ... indicates that the Secretary consulted and cooperated with counsel for the [private] plaintiffs to a limited extent, the government did not have a ‘sufficient “laboring oar” in the conduct of the [private] litigation to actuate the principles of estoppel.’ ” 716 F.2d at 1463 n. 11. In this case, quite the contrary occurred. The Secretary’s action was tried before the same court, the Secretary intervened in the private actions, the cases were consolidated for discovery purposes, and the Secretary played a major role in the discovery and in the negotiation of the settlement. Notwithstanding the majority’s assertions regarding the compulsory and restricted participation of the Secretary, this case is unlike Cunningham because here the Secretary utilized his statutory right of intervention and became a full participant in a settlement process spanning several years. After taking such an active role in the settlement process, the Secretary cannot declare himself beyond the power of the district court once the court, contrary to his wishes, concluded that the settlement was fair and reasonable.
ERISA was enacted in reaction to the inability of participants and beneficiaries to adequately police the management of pension plans. Simply because the Secretary of Labor is now included as an additional enforcement agent, it does not follow that Congress intended the Secretary’s role to be preeminent to that which plan participants and beneficiaries had under previous statutes or are to have under ERISA. Indeed, their interests are precisely the same.
II. CLASS CERTIFICATION
Additionally, I cannot support the majority’s conclusions regarding certification of the plaintiff class. The majority opinion concludes that the district court improperly certified as one class two groups of plaintiffs with antagonistic interests. Rule 23(a) of the Federal Rules of Civil Procedure sets forth four factors which must be met before a district court can certify a cause of action as a class action. The rule provides:
(a) PREREQUISITES TO CLASS ACTION. One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
The majority challenges the class certification only with regard to the fourth requirement, arguing that the private plaintiffs are inadequate because they seek to represent a class within which there are substantial conflicting economic interests. This conflict arises according to the majority, because to the extent that both benefit claims and asset mismanagement claims were successful, the asset mismanagement group would be deprived of the full enjoyment of its recovery.
The district court certified the class in this case as “consisting of all persons on whose behalf a contribution has been made or was required to be made to the Central States Southeast and Southwest Areas Pension Fund.” The court recited the following facts in its order to support its conclusion that this was a proper class under Rule 23.
a. The class is in excess of 400,000 and is so numerous that joinder of all members is impracticable.
b. The complaint alleges common questions of law and fact. These include:
1. Whether the benefit rules of the
CSPF are arbitrary and capricious.
*7042. Whether fiduciaries of the CSPF breached their fiduciary duties in connection with asset management transactions of the Fund.
3. Whether the CSPF, the [Teamsters], other [Teamster]-related entities and the individual defendants conspired to disseminate false information about Fund benefit rules to limit Fund benefits, and to use Fund assets for purposes other than the best interests of the participants.
c. The claims of the numerous representative plaintiffs enumerated in the Sullivan and Dutchak complaints are typical of the benefit complaints of the Class: that participants with many years of service and substantial contributions on their behalf to the Fund have been denied benefits through the arbitrary and capricious provisions of Fund benefit rules.
d. All participants benefit from the recovery by the CSPF of losses caused by breaches of fiduciary.
e. The representative parties are able to adequately represent the interests of the class. Their counsel, Lawrence Walner and Edmund W. Kitch, have extensive experience; they have demonstrated to the court through their negotiation of the settlement, briefing of these matters and appearances and various filings before the court, that they are able to effectively advance the interests of the class. They have done so in this litigation.
f. The settlement agreement was negotiated between counsel for the plaintiff class and the trustees of the Fund in a manner that was not collusive and which fairly and adequately represented the interests of all members of the class. No potential conflict of interest was such that counsel of any representative party was rendered unable to adequately represent the settlement class. Prior to the successful outcome of the settlement negotiations each party vigorously contested the positions of the others and nothing was done without massive fights, lots of briefs, vigorous arguments, and several different positions.
g. The Department of Labor in this case has vigorously represented the interests of those class members interested in a larger asset management recovery.
h. The present trustees of the Fund have vigorously represented the interests of those class members who desire that there be but limited expansion of benefit eligibility.
i. The investigation and discovery of the matters underlying this litigation have been under way for more than seven years. The investigation by the Department of Labor of the CSPF is believed to be its most extensive ERISA investigation. Prior to the filing of Donovan the Department of Labor conducted an extensive administrative investigation. The Donovan complaint was on file for three and one-half years before this court granted a stay of discovery in light of the then prospects for a settlement agreement. Counsel for the participants have extensively investigated matters relating to the CSPF. All parties have had sufficient information to evaluate the settlement and have provided the court with sufficient information to evaluate the reasonableness of the settlement.
j. The settlement class is reasonable. The certification of a class is within the
sound discretion of the trial court, reversible on appeal only for an “abuse of discretion.” Liberles v. County of Cook, 709 F.2d 1122, 1126 (7th Cir.1983); Simer v. Rios, 661 F.2d 655, 668 (7th Cir.1981), cert. denied, 456 U.S. 917, 102 S.Ct. 1773, 72 L.Ed.2d 177 (1982). The majority concludes that the district court abused its discretion in this case because the existence of the asset mismanagement claims and the benefit claims rendered the plaintiff class an inadequate representative under Rule 23(a)(4). “Whether a party would adequately protect the interests of the class is a question of fact depending on the circumstances of each case.” Susman v. Lincoln American Corp., 561 F.2d 86, 90 (7th Cir.1977) (citing Schy v. Susquehanna Corp., 419 F.2d 1112, 1116 (7th Cir.), cert. denied, 400 U.S. 826, 91 S.Ct. 51, 27 L.Ed.2d 55 *705(1970)). This adequacy determination is itself a matter of discretion and will not be disturbed unless an abuse of discretion is shown. Susman, 561 F.2d at 90. I disagree with the majority’s determination that the district court abused its discretion in finding that the plaintiffs in this case adequately represent the class as certified.
Under Rule 23, class plaintiffs cannot fairly and adequately protect the interests of the class they seek to represent if they present a claim about which members of the class have antagonistic or conflicting interest. Hansberry v. Lee, 311 U.S. 32, 44-45, 61 S.Ct. 115, 119, 85 L.Ed. 22 (1940); Swain v. Brinegar, 517 F.2d 766, 780 (7th Cir.1975). While a conflict of interest is theoretically possible in this case because of the existence of two potentially conflicting claims no such conflict affected this settlement. See In re Trans-ocean Tender Offer Securities Litigation, 455 F.Supp. 999, 1014 (N.D.Ill.1978). The multiplicity of parties already before the court assured that diverse positions would be argued vigorously to the court. The representative plaintiffs include a participant already receiving a maximum pension, who approves of the settlement. The benefits and asset mismanagement aspects of the settlement were thoroughly discussed during the negotiations. The ultimate settlement was a compromise of these different positions, drawing for much of its structure upon compromises embodied in ERISA itself. The district court thus was provided with a range of views on the merits of the positions of each of the parties, and on the merits of the settlement from diverse perspectives. The district court was keenly aware of the potential for conflict in this case and guarded against that potential affecting the fairness of the settlement.
Moreover, the joinder of the benefit and asset mismanagement claims was justified by the interrelationship between the two. Investment recovery could improve the financial position of the CSPF.and reduce the need for benefit denials based upon limited funds. Proof of a systematic practice of investment negligence would provide corroborative circumstantial evidence that the trustees attended to issues of benefit entitlement in a similarly inattentive fashion. Only the CSPF could agree to remedy the benefit claims. Only the individual defendants and the insurance carriers could agree to settle the investment claims. Each negotiation proceeded separately, at separate times, with full information to the court. The district court had ample reason to conclude that “on a settlement, the question is not whether the class will be represented adequately but whether it, in fact has been adequately represented. Most assuredly here, those interests have been adequately represented.” The two aspects of the complaint were closely related, but they were complementary, not in conflict. I would therefore, affirm the judgment of the district court.