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BARTZ v. CARTER

March 14, 1989

ROBERT J. BARTZ, CLEMENT R. JANDESKI, LUCILLE D. JOHNSEN, MICHAEL D. KARPINSKI, THOMAS M. PINDELSKI, RICHARD T. WIKLAK, and JOSEPH T. PEERS, Plaintiffs,
v.
JOHN M. CARTER, SR., ESTHER CARTER, FRANCES BUDRECK, ALL POWER, INC. PROFIT SHARING PLAN, ALL POWER, INC. EMPLOYEES' STOCK OWNERSHIP PLAN, and ALL POWER, INC., Defendants



The opinion of the court was delivered by: NORGLE

 CHARLES RONALD NORGLE, UNITED STATES DISTRICT JUDGE

 Before the court is defendants' motion to dismiss, see Fed.R.Civ.P. 12(b)(6), or in the alternative, for a more definite statement of demand for judgment. See Fed.R.Civ.P. 8(a)(3). For the following reasons, the motion to dismiss is granted in part and denied in part, and the motion for a more definite statement is denied.

 Plaintiffs, former employees of defendant, All Power, Inc., and participants in certain employee pension benefits plans in which All Power, Inc. is the sponsor, have instituted this action under § 502(a) of the Employee Retirement Income Security Act (ERISA), alleging, inter alia, violations of fiduciary obligations imposed upon pension plan trustees by § 404 of ERISA, 29 U.S.C. § 1104. Defendants are the three trustees of the Employees' Stock Ownership Plan ("ESOP"), the ESOP itself, the corporation sponsoring the ESOP, and a profit sharing plan which is the predecesor of the ESOP (collectively, the profit sharing plan and the ESOP are referred to hereafter as "the Plan").

 The Amended Complaint contains seven counts. Counts I, II, III, and VI allege that defendants John and Esther Carter, with the acquiesence of defendant Frances Budreck, converted the profit sharing plan into an ESOP to enable the Carters to gain control of All Power, Inc. The Amended Complaint further alleges that the value of the plan has been reduced by approximately 22% since the conversion to an ESOP. Counts IV and VII allege that two plaintiffs, Lucille Johnsen and Joseph T. Peers, are entitled to an immediate distribution of their vested benefits, yet defendants have failed to distribute those benefits, and have undervalued those benefits due to the reduction in the value of the Plan resulting from its conversion into an ESOP. Count V alleges that all defendants have failed to provide required information regarding the Plan in a timely manner.

 On a motion to dismiss, the allegations of the complaint as well as the reasonable inferences to be drawn from them are taken as true. Doe v. St. Joseph's Hosp., 788 F.2d 411 (7th Cir. 1986). Dismissal under Rule 12(b)(6) is improper unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Papapetropoulous v. Milwaukee Transport Services, Inc., 795 F.2d 591, 594 (7th Cir. 1986).

 Defendants move for dismissal of all counts on the grounds that plaintiffs have failed to exhaust their Plan remedies. A strong policy underlies the exhaustion doctrine in ERISA suits: avoidance of litigation by encouraging settlement and filtering out frivolous claims. Kross v. Western Electric Co., 701 F.2d 1238, 1244-45 (7th Cir. 1983). Therefore, the trial court, in its discretion, may require that a claimant exhaust administrative remedies prior to bringing suit. Id. at 1244. However, exhaustion is not required in actions for breach of fiduciary duty. Lindahl v. American Tel. and Tel. Co., 609 F. Supp. 267 (N.D. Ill. 1985).

 Defendants argue that plaintiffs' action is not for breach of fiduciary duty, because plaintiffs in essence "simply want their money," and is therefore brought for recovery of benefits due under the terms of the plan. See 29 U.S.C. § 1132(a)(1)(B). However, to the extent that plaintiffs demand that the trustees personally make restitution for losses suffered by the Plan, they do not seek benefits due under the Plan as it presently exists, but rather they seek restitution of funds owing to the Plan due to violations of fiduciary duties committed by the trustees. See 29 U.S.C. 1132(a)(3)(B)(ii). Therefore, plaintiffs' action is at least in part an action breach of fiduciary duty, and exhaustion is not required. In fact, this case illustrates the wisdom of the rule against requiring plaintiffs to exhaust claims for breach of fiduciary duty. To require that the plaintiffs in this case ask the trustees to personally repay large sums of money would be futile, create needless delay, and would not fulfil the policies underlying exhaustion.

 In this case, all of plaintiffs' claims except for Count V (which is dismissed, as described infra) involve the issue of whether the Plan was wrongfully converted into an ESOP. Therefore, while some of plaintiffs' claims may involve issues other than breach of fiduciary duty, such as failure to distribute vested benefits, requiring exhaustion of any of these claims would do little or nothing to avoid litigation; the issues are not readily separable. Consequently, to the extent that the court must exercise discretion, the court declines to require exhaustion.

 Defendants next argue that plaintiffs' claims, to the extent that they allege breaches of fiduciary duty, should be dismissed. Defendants argue that such claims may only be brought on behalf of the plan, and plaintiffs have brought this action in their capacity as beneficiaries.

 The Supreme Court has held that a beneficiary may bring an action against a fiduciary for violation of fiduciary duty, but any recovery for such violation inures to the benefit of the Plan as a whole. *fn2" Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 105 S. Ct. 3085, 3089, 87 L. Ed. 2d 96 (1985). The Ninth Circuit has interpreted Russell as holding that

 
ERISA grants no private right of action by a beneficiary qua beneficiary; rather it accords beneficiaries the right to sue on behalf of the entire plan if a fiduciary breaches the plan's terms.

 Sokol v. Bernstein, 803 F.2d 532, 536 (9th Cir. 1986) (dicta); accord, Call, 689 F. Supp. at 1020. The court agrees with this interpretation. The Court in Russell found that Congress intended that "actions for breach of fiduciary duty be brought in a representative capacity on behalf of the plan as a whole." Russell, 105 S. Ct. at 3090 n. 9. Consequently, to the extent that the Amended Complaint alleges breach of fiduciary duty, it is dismissed, and plaintiffs ...


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