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MCDOUGALLL v. DONOVAN

United States District Court, Northern District of Illinois, E. D


May 24, 1982

HOWARD MCDOUGALL, THOMAS F. O'MALLEY, R.
v.
PULLIAM, SR., ROBERT J. BAKER, LORAN W. ROBBINS, MARION M. WINSTEAD, JR. AS TRUSTEES OF CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, PLAINTIFFS, V. RAYMOND J. DONOVAN, SECRETARY OF LABOR, DEFENDANT. RAYMOND J. DONOVAN, SECRETARY OF LABOR, COUNTER-PLAINTIFF, V. HOWARD MCDOUGALL, THOMAS F. O'MALLEY, R. V. PULLIAM, SR., ROBERT J. BAKER, LORAN W. ROBBINS, MARION M. WINSTEAD, HAROLD J. YATES AND EARL L. JENNINGS, JR., INDIVIDUALLY AND AS TRUSTEES OF CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, AND EARL N. HOEKENGA, AND THE CENTRAL CONFERENCE OF TEAMSTERS, COUNTER-DEFENDANTS.

The opinion of the court was delivered by: Aspen, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiffs, the trustees of the Central States, Southeast and Southwest Areas Pension Fund (the "Fund") filed a Complaint for Declaratory Judgment in this Court against the Secretary of Labor (the "Secretary") seeking, inter alia, a declaratory judgment that the Fund's acquisition of a Falcon F-20 jet aircraft from the Falcon Jet Corporation [which had acquired the jet from the Central Conference of Teamsters (the "CCT")] was not a "prohibited transaction" under § 406 of the Employee Retirement Income Security Act of 1974 ("ERISA"). 29 U.S.C. § 1106 (1976). The Secretary responded by filing an Answer to the Fund's complaint as well as a Counterclaim against the Fund and the CCT alleging that the Fund's acquisition of the jet aircraft and its leasing of hangar space from the CCT constituted prohibited transactions under ERISA. The Secretary seeks an order rescinding the jet acquisition and hangar sublease agreements and a further order requiring that the CCT restore to the Fund all monies paid by the Fund in connection with the aircraft acquisition. Presently before the Court is the CCT's motion to dismiss the Secretary's counterclaim either for lack of subject matter jurisdiction or failure to state a claim for which relief can be granted.*fn1 Fed.R.Civ.P. 12(b)(1), (6). For the following reasons, CCT's motion is denied.

The principle is clear that a claim should not be dismissed at this stage of the litigation unless it appears beyond doubt that the plaintiff (or counter-plaintiff) can prove no set of facts in support of his claim that would entitle him to the relief requested. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). On a motion to dismiss, the Court will read the claim in the light most favorable to the party asserting it and will take the factual allegations contained therein as true. Mathers Fund, Inc. v. Colwell, 564 F.2d 780, 783 (7th Cir. 1977). For purposes of this motion, therefore, we will assume that the transactions in question are "prohibited transactions" under ERISA.*fn2 29 U.S.C. § 1106(a)(1)(A) (1976).

In its motion to dismiss, the CCT argues that because it is not a pension plan "fiduciary" within the meaning of ERISA, 29 U.S.C. § 1002(21)(A) (1976), the Secretary of Labor lacks authority to seek restitution from the CCT for its participation in the prohibited transaction at issue in this case. This argument is premised on the theory that Title I of ERISA, the "labor title" under which this suit was brought, grants authority to the Secretary only to enforce standards governing the conduct of pension plan fiduciaries, not parties in interest which deal with those fiduciaries. Upon review of the language, structure and purpose of ERISA, however, the Court concludes that the CCT's reading of the statute is too narrow.

ERISA grants to the Secretary broad authority to bring civil actions "(A) to enjoin any act or practice which violates any provision of [Title I of ERISA], or (B) to obtain other appropriate relief (i) to redress such violation, or (ii) to enforce any provision of [Title I]." 29 U.S.C. § 1132(a)(5) (1976). Although the violation at issue in this case is derived from a statute which governs the conduct of pension plan fiduciaries,*fn3 the equitable enforcement authority granted the Secretary is not limited solely to actions against fiduciaries.*fn4 Freund v. Marshall & Isley Bank, 485 F. Supp. 629, 641-42 (W.D. Wis. 1979). Such a limitation would run directly counter to Congress' stated intention to provide the Secretary "the full range of legal and equitable remedies in both state and federal courts."*fn5 1974 U.S.Code Cong. & Admin.News, S.Rpt.No.93-127, 93d Cong., 1st Sess., 4639, 4838, 4871.

Congress envisioned that the enforcement of the labor provisions of ERISA would reflect traditional principles of trust law. 1974 U.S.Code Cong. & Admin.News, 5177, 5186. Eaves v. Penn, supra at 462. These principles make clear that a non-fiduciary who knowingly participates in a breach of fiduciary duty, either directly or indirectly, is liable to the cestui at least to the extent the non-fiduciary has profited from the breach. Fremont v. McGraw-Edison Co., 606 F.2d 752, 759 (7th Cir. 1979), cert. denied, 445 U.S. 951, 100 S.Ct. 1599, 63 L.Ed.2d 786 (1980);*fn6 Freund v. Marshall & Isley Bank, supra at 642. See generally, Restatement (Second) of Trusts § 256 (1959); G. Bogert, Trusts and Trustees, §§ 868, 901 (2d ed. 1962). ERISA should not be read so narrowly as to defeat these principles of the common law trusts.

The structure of ERISA further supports our conclusion that the Secretary has authority to seek restitution from a non-fiduciary party in interest. The CCT argues that its liability for participation in this prohibited transaction is governed exclusively by Title II (the "tax title") rather than Title I (the "labor title") of ERISA. Title II imposes upon parties in interest [which the Internal Revenue Code identifies as "disqualified persons," 26 U.S.C. § 4975(e)(2) (1976)] a 100 percent excise tax on the amount involved in a prohibited transaction. 26 U.S.C. § 4975(a), (b) (1976). Given this tax remedy, the CCT contends that Congress could not have also intended to authorize the Secretary of Labor to seek restitution from a party in interest. The tax provisions of Title II contain a mechanism, however, under which the Secretary of Labor is empowered to attempt to "correct" or undo prohibited transactions prior to the imposition of the 100 percent excise tax by the Internal Revenue Service.*fn7 26 U.S.C. § 4975(h) (1976). Moreover, Title III of ERISA makes clear that the powers granted to the Department of Labor in Title I and to the Internal Revenue Service in Title II are not mutually exclusive. The inter-departmental coordination mandated by Title III reflects the fact that Congress envisioned overlapping authority between the Department of Labor and the Internal Revenue Service in the administration and enforcement of pension plan standards under ERISA.*fn8 29 U.S.C. § 1203, 1204 (1976).

Accordingly, the CCT's motion to dismiss is denied. It is so ordered.


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