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Spickerman v. Central States

decided: September 4, 1986.

JOHN F. SPICKERMAN, SR., PLAINTIFF/COUNTERDEFENDANT-APPELLEE,
v.
CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS HEALTH AND WELFARE FUND, ET AL., DEFENDANTS/COUNTERPLAINTIFFS-APPELLANTS, AND WILLIAM E. BROCK, SECRETARY OF LABOR, INTERVENING DEFENDANT-APPELLANT



Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 83 C 7966 - George N. Leighton, Judge.

Author: Ripple

Before BAUER, COFFEY and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge. The appellee, John F. Spickerman, formerly served as a trustee of the appellants Central States, Southeast and Southwest Areas Health and Welfare Fund (Welfare Fund) and Central States, Southeast and Southwest Areas Pension Fund (Pension Fund). On October 7, 1983, he filed this diversity action to enforce contractual rights allegedly created under each fund's controlling trust agreement. Specifically, Mr. Spickerman sought to compel both funds to reimburse him - on an ongoing basis - for attorney's fees which he has been incurring in the defense of a separate action brought by the Secretary of Labor (Secretary). The appellants, the two funds and the Secretary, responded by arguing that 1) Mr. Spickerman had no legally enforceable contractual right to the attorney's fee payments, and 2) even if he had such a right, payment prior to Mr. Spickerman's ultimate exculpation on the underlying charges would violate the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. ยง 1001 et seq.

On cross-motions for summary judgment, the district court found in favor of Mr. Spickerman. The court held that his "rights are currently enforceable as a simple matter of trust and contract law . . . [and] ERISA does not preclude enforcement of these rights at this time." Spickerman v. Central States, Southeast and Southwest Areas Health and Welfare Fund, No. 83 C 7966 (N.D. Ill. Mar. 1, 1985). Thus, the court ordered the Welfare Fund to pay all of Mr. Spickerman's outstanding attorneys' fees and "to continue to pay the reasonable costs of defense until such time as a final judgment is entered in the underlying litigation." Id.

After reviewing the record and the arguments in this court, we believe that there are disputed issues of material fact concerning the existence of Mr. Spickerman's contractual rights. Accordingly, we reverse the district court's decision granting summary judgment in favor of Mr. Spickerman and we remand this case for further proceedings.

I

From 1967 until April 30, 1977, John Spickerman served as a trustee for both the Central States, Southeast and Southwest Areas Health and Welfare Fund and the Central States, Southeast and Southwest Areas Pension Fund. As a result of this activity, he and other former trustees were named as defendants in an October 16, 1978 suit brought by the Secretary of Labor. In that suit, Ford v. Robbins, No. 78 C 4075 (N.D. Ill.), the Secretary alleged that Mr. Spickerman and the other trustees had breached ERISA'S fiduciary duties through their dealings with Amalgamated Insurance Agency Services, Inc., a firm which was retained by the trustees to provide claim-processing services. In defending against the Robbins action, Mr. Spickerman incurred, and continues to incur, legal fees and costs.*fn1 In the present litigation, he contends that both the Welfare Fund and the Pension Fund are obligated to reimburse him on a continuing basis for those expenses. His argument is based on the following information.

The Trust Agreements. At the time that this action was filed, both the Welfare Fund and the Pension Fund were controlled by similar trust agreements. Prior to October 11, 1976, Article VI, section 6 of each agreement provided for the reimbursement of legal expenses incurred by active trustees. On that date, while Mr. Spickerman was still serving as a trustee, Article VI, section 6 of each agreement was amended to provide as follows:

Sec. 6. Expenses - All proper and necessary expenses incurred by any former or incumbent Trustee, including costs of defense in litigation arising out of the Trusteeship for this Fund, and also including costs incurred by any former or incumbent Trustee in providing testimony or information about administration of this Fund in any investigation, trial or other proceeding, shall be paid out of the Trust Fund, as a matter of right of any such former or incumbent Trustee, to the extent permitted by applicable law. As used in the preceding sentence, the term "costs" includes but is not limited to reasonable attorneys' fees.

Appellants' App. at 16. Notably, this provision guarantees, "as a matter of right," the payment of litigation costs incurred by former trustees.

The Policy. To implement this section, the Pension Fund's trustees adopted a Litigation Defense Costs Policy (Policy) at their February 15, 1978 meeting. Appellants' App. at 17-23. In taking this action, the trustees noted that:

it is in the best interest of the participants and beneficiaries of this Fund that the broad indemnification principles which have previously existed be codified by this formal resolution, in order to provide an incentive to capable and loyal individuals to retain or accept positions of responsibility in this Fund and to perform valuable services on behalf of this Fund.

Appellants' App. at 20 (emphasis added). At the time this policy was adopted, Mr. Spickerman was no longer a trustee of the funds, and the Robbins litigation had not yet been filed.

The Resolution. On November 22, 1978, one month after the Robbins litigation was filed, the Welfare Fund's trustees exercised their Policy discretion by adopting the Robbins Resolution (Resolution). Appellants' App. at 24-26. In the Resolution, the Welfare Fund acknowledged the Policy's continued existence and affirmatively recognized that the sixteen individuals named as defendants in Ford v. Robbins - the Department of Labor (DOL) litigation in which Mr. Spickerman was charged - were persons who not only were covered under the Policy but also were charged with committing acts which were covered by the Policy. The Resolution concluded by obligating the Welfare Fund to pay each defendant's litigation expenses ...


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