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Mutual Life Insurance Co. v. Yampol


decided: February 5, 1988.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 83 C 9701 -- Harry D. Leinenweber, Judge.

Bauer, Chief Judge, Coffey, Circuit Judge, and Eschbach, Senior Circuit Judge.

Author: Eschbach

ESCHBACH, Senior Circuit Judge.

The Mutual Life Insurance Company of New York ("MONY") filed suit in 1983 against several defendants alleging that the defendants had breached their fiduciary duties to the National Health Care Trust ("Trust") in violation of the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq. In filing suit, MONY was acting as the assignee of the Illinois Director of Insurance ("Director"), who is acting under a state court order to liquidate the Trust. People of the State of Illinois ex rel. O'Connor v. National Health Care Trust, et al., No. 82 CH 14 (Order of Feb. 9, 1982). The question we must answer in this appeal is whether the district court was correct to dismiss the complaint on the ground that MONY had no standing under ERISA to bring, the present action. MONY argues that the Director qualifies as a fiduciary of the Trust under 29 U.S.C. § 1002(21), and that as his assignee, MONY has standing to sue the defendants for breach of their fiduciary duties under 29 U.S.C. § 1132(a)(2). We agree that the Director qualifies as a fiduciary under the plain language of ERISA, 29 U.S.C. § 1002(21), and will therefore reverse and remand.


The Trust is, according to MONY's first amended complaint, a self-insured employee benefit plan established as part of a "Plan of Hospital and Medical Coverage" pursuant to ERISA 4(a), 29 U.S.C. § 1003(a). The Trust provides benefits for employees of various Illinois nursing homes. MONy describes itself as an "excess insurer" of the trust's health plan. MONY alleges that defendants Hillel Yampol ("Yampol"), Jay Shlofroch, Morris Shlofroch and Benefit Center Ltd., managed the affairs of the Trust from March 1, 1980 and that in so doing, each was obligated to manage the Trust in accord with the fiduciary duties established by 29 U.S.C. § 1104. MONY further alleges, in two separate counts, that the defendants violated their fiduciary duties to the detriment of the Trust.

At some point in 1982 the Illinois Director of Insurance initiated an action in the Cook County Circuit Court for the liquidation of the Trust, People of the State of Illinois ex rel. O'Connor v. National Health Care Trust, et al., No. 82 CH 14, in which action the defendants Yampol and Jay Shlofroch (according to the complaint) voluntarily appeared and consented on behalf of the Trust to the appointment of the Director as Liquidator.

Pursuant to the order of liquidation entered by the Cook County court on February 9, 1982, and the pertinent provisions of the Illinois Insurance Code, Ill. Rev. Stat. ch. 73, paras. 799 to 833.11 (Smith-Hurd 1965 and Supp. 1987), the Director was "vested by operation of law with the title to all property, contracts and rights of action of the company. . . ." Ill. Rev. Stat. ch. 73, para. 803. On November 15, 1982 the Director assigned to MONY "the right to pursue, at its own expense, all claims and causes of action of NHC [National Health Care] Trust to recover amounts due to NHC Trust and . . . authorized [MONY] to do so in its own name, or as assignee of the Liquidator of NHC Trust." Agreement of November 15, 1982, at 4. In return, the Agreement recited that MONY had loaned the Director $325,000 to pay claims incurred by the Trust.*fn1 Id. at 2. The agreement was approved by the county court overseeing the liquidation proceedings.

Acting under the authority of this agreement, MONY filed an action alleging that the defendants had violated their fiduciary duties during their administration of the Trust. Defendant Yampol filed a motion to dismiss the complaint on the ground that MONY had no standing. The district court denied this motion and the request that it reconsider that decision. MONY later filed a first amended complaint clarifying that it was the Director's assignee but Otherwise essentially reiterating the claims of the original complaint Defendant Yampol renewed its motion to dismiss the complaint and the district judge again denied the motion. At this point the action was reassigned to another district judge.

Having lost its motion to dismiss, Yampol filed its answer to the first amended complaint, Yampol also filed a counterclaim against MONY and a third party complaint against Sheldon Robinson and Associated Financial Consultants, Inc. ("AFC"). Third party defendants Robinson and AFC then filed their own motion to dismiss the complaint, based on the same ground earlier asserted by the defendants. The second district judge granted the motion, determining that ERISA provided no standing for MONY. MONY now appeals.


MONY asserts that ERISA provides jurisdiction for its claim under two distinct rationales. MONY claims that ERISA's jurisdictional provision is not exclusive, see 29 U.S.C. § 1132(e)*fn2, and that the Trust itself has standing to bring an action under 29 U.S.C. § 1132(a)(2) for relief from breaches of fiduciary duty, see 29 U.S.C. § 1109, simply because it is an ERISA plan.*fn3 MONY also asserts that the Director as Liquidator of the Trust is an ERISA fiduciary, and that MONY, as the Director's assignee, may therefore bring suit as a fiduciary under 29 U.S.C. § 1132(a)(2). Because the Director qualifies as a fiduciary under the plain language of the statute, see 29 U.S.C. § 1002(21), we hold that MONY has properly invoked the jurisdiction of the federal courts. We therefore do not consider MONY's assertion that the plan itself would have standing to pursue the claim, even though ERISA plans are not named as one of the several entities provided standing under ERISA's jurisdictional and standing provisions. See 29 U.S.C. §§ 1132(a), 1132(e)(1).

Fiduciaries are expressly provided standing to bring actions for relief from breaches of fiduciary duty. 29 U.S.C. § 1132(a)(2); see id. § 1109 (making fiduciaries liable for breaches of their fiduciary duties); id. § 1104 (defining a fiduciary's duties). Section 1002(21) of Title 29 provides in pertinent part that for the purposes of ERISA a person is a fiduciary

to the extent (i) that he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such a plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

We agree with the first district judge who decided this question below that the Director's responsibilities with regard to the Trust fall well within the parameters of this language.

Under the Illinois statutory provisions detailing his duties and powers as Liquidator, the Director possesses significant authority and control over the management and disposition of any company he is authorized to liquidate. Ill. Rev. Stat. ch. 73, para. 805 (Smith-Hurd 1965 & Supp. 1987).*fn4 Among other rights and responsibilities, the Director may, subject to the approval of the state court, sell or otherwise dispose of the real and personal property of the Trust. He may also sell or compromise all doubtful or uncollectible debts or claims of the Trust, again with the approval of the state court. The Director may also solicit contracts whereby solvent companies assume the liabilities owing to the Trust's policyholders and such other creditors "as may be possible." He may use the assets of the Trust to reinsure or cede as much business as necessary. Id.

The Illinois statutory provisions direct that the state courts shall by written order approve the Director's acts and authorize him to enter into such contracts if the court finds that the Director has endeavored to find, and has indeed found, the "best possible contract" in the interests of the policyholders of the Trust and such other creditors as may be possible. Id. There thus can be no doubt the Director exercises a significant degree of control, authority and responsibility in the managements of the Trust and the disposition of its assets. See, e.g., Chicago Board of Options Exchange v. Connecticut General Life Insurance Co., 713 F.2d 254, 258-60 (7th Cir. 1983) (power to alter an annuity contract that was an asset of an ERISA plan enough to qualify as a fiduciary). Under the application of the plain language of ERISA the Director is therefore a fiduciary.

While the Director falls within the ERISA definition of fiduciary given a literal reading of its definition, we note that the result is underscored by this court's consistently broad reading of that definition. Ed Miniat, Inc. v. Globe Life Insurance Group, Inc., 805 F.2d 732, 735-38 (7th Cir. 1986); Leigh v. Engle, 727 F.2d 113, 133-34 (7th Cir. 1984); Chicago Board of Options Exchange, 713 F.2d at 258-60; Schulist v. Blue Cross of Iowa, 717 F.2d 1127, 1131 & n.4 (7th Cir. 1983); Thornton v. Evans, 692 F.2d 1064, 1077 (7th Cir. 1982).

The Director does not, of course have complete discretion over the management and disposition of the assets of the Trust, but the fact that a court oversees and must approve many of the Director's decisions does not bely the fact that the Director negotiates, solicits, drafts contracts and acts in general as the manager of the Trust. An individual is a fiduciary to the extent that he exercises any discretionary authority or control respecting management of a plan or the disposition of its assets. Leigh, 727 F.2d 113, 133-34; Eaton v. D'Amato, 581 F. Supp. 743, 745-46 (D. D.C. 1980) (corporation a fiduciary despite tight supervision and control by the plan's trustees); Brink v. DaLesio, 496 F. Supp. 1350, 1374 (D. Md. 1980), aff'd in part, rev'd in part, on other grounds, 667 F.2d 420 (4th Cir. 1982) (individual a fiduciary despite requirement that trustees approve his work because the individual performed a significant portion of the work and the trustees relied heavily on his judgment).

In addition, we note that ERISA is a comprehensive remedial act Congress, designed to provide federal forums and uniform substantive law to safeguard the interests of employees and their beneficiaries. See generally S. Rep. No. 127 93d Cong., 1st Sess. (1973), reprinted in 1974 U.S. Code Cong. & Admin. News 4838, 4844-65; H.R. Rep. No. 533, 93d Cong., 1st Sess. (1973), reprinted in 1974 U.S. Code Cong. & Admin. News 4639 ("House Report"); see also Thornton v. Evans, 692 F.2d 1064, 1079 (7th Cir. 1982). To strip the Director of fiduciary status would leave the individual most keenly aware of any breaches of duty by past fiduciaries without the ability to sue to obtain the benefit of ERISA's remedial provisions. While remedies of various description may be available in the states, a fundamental purpose behind ERISA was Congress's purpose to assure plan participants and fiduciaries sufficient and uniform remedies that traditional trust law had, in the view of Congress, all too often failed to provide. E.g., House Report, reprinted in U.S. Code Cong. & Admin. News at 4650; see also Thornton, 692 F.2d at 1079.

The defendants argue that Levy v. Lewis, 635 F.2d 960 (2d Cir. 1980), establishes that the Director may not be considered a fiduciary for the purposes of ERISA. In Levy, the Second Circuit held that the New York state liquidator was not an ERISA fiduciary in the circumstances of that case where there were no plan assets to manage or dispose, and where the liquidation of the insurance company involved would require the state liquidator to favor the ERISA creditors, an "isolated group of retirees," rather than to consider fairly the claims of all the creditors. Id. at 967-68. With regard to the first rationale, the Trust was funded*fn5 and Levy is therefore inapposite. With regard to the second rationale, the liquidated company under the New York state liquidator's control was an insurance company that sponsored a variety of programs that established obligations on its part. Levy, 635 F.2d at 962. There is no insurance company with several plans involved in the appeal before us; instead, there is a single ERISA plan, the Trust. Thus the conflicts Levy envisioned among various beneficiaries and participants of different plans fall out of the picture.

Of course, the Trust itself may have other creditors besides the participants and beneficiaries, and the Director must consider their claims fairly -- but this does not put him into a substantively different position from other fiduciaries of ERISA plans. The management of any ERISA plan necessarily involves the making of commitments (beyond the circle of participants and beneficiaries) in the course of investing the ERISA funds and accomplishing the day-to-day administration of the plan. While the fiduciary's loyalty must be to the participant and beneficiaries, he must also treat fairly the plan's obligations to the creditors created by its ongoing business. Furthermore, the defendants have not brought to our attention any specific conflict of interest to support their assertions that the Director will face unmanageable conflicts. Cf. United Independent Flight Officers, Inc. v. United Air Lines, Inc., 756 F.2d 1262, 1266-69 (7th Cir. 1985) (neither employer nor union could be considered an ERISA fiduciary with regard to their negotiations over a collective bargaining agreement because of the inconsistency between the duties imposed on a fiduciary and the demands placed on the negotiating parties in collective bargaining).*fn6

The defendants cite our decision in Schacht v. Brown, 711 F.2d 1343, 1346 n.3 (7th Cir.), cert. denied, 464 U.S. 1002, 104 S. Ct. 508, 104 S. Ct. 509, 78 L. Ed. 2d 698 (1983), as precedent for their proposition that the Director cannot pursue an action that was unavailable to the liquidated company prior to the order of liquidation. In Schacht, however, we were reviewing in dicta Illinois case law construing the Director's ability to maintain actions under the authority of the Illinois Insurance Code. See Ill. Rev. Stat. ch. 73, § 803.*fn7 See Schacht, 711 F.2d at 1346-47. The Director's standing to sue as an ERISA fiduciary does not derive from Illinois statutory authority to bring the suit, hut rather from the Director's status as an ERISA fiduciary under the facts of this case. It is ERISA itself that provides fiduciaries with standing to sue under 29 U.S.C. § 1132(a)(2). Thus in this case federal law provides the Director standing whereas in Schacht no such federal provision of standing was claimed.

We hold that, under the particular circumstances of this case, the Director is a fiduciary of the Trust for the purposes of ERISA. MONY, as the Director's assignee, therefore has standing to pursue its amended complaint based on 29 U.S.C. § 1132(a)(2).


In accordance with the foregoing Opinion, the judgment of the district court is REVERSED and REMANDED.

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