LeBlanc v. Cahill
| Decision Date | 11 August 1998 |
| Docket Number | 96-2848,Nos. 96-2046,s. 96-2046 |
| Citation | 153 F.3d 134 |
| Parties | 22 Employee Benefits Cas. 1545, Pens. Plan Guide (CCH) P 23944W Marc E. LeBLANC, Administrator of the Sheet Metal Workers' National Pension Fund; Sheet Metal Workers' National Pension Fund; John Harrington, in his capacity as a participant in the Sheet Metal Workers' National Pension Fund, 15 Garden Drive, Lynbrook, NY 11563; Arthur Moore, in his capacity as Trustee of the Sheet Metal Workers' National Pension Fund; Alan J. Chermak, in his capacity as National Pension Fund Trustee; Matthew B. Hernandez, Jr., in his capacity as National Pension Fund Trustee; Clinton O. Gowan, Jr., in his capacity as National Pension Fund Trustee; Ronald Palmerick, in his capacity as National Pension Fund Trustee; Bruce Stockwell, in his capacity as National Pension Fund Trustee, Plaintiffs-Appellants, v. Lawrence A. CAHILL; Kenneth M. Cahill; James W. Beck; Charles E. Underbrink; Larken, Incorporated; Larken Properties, Incorporated, Defendants-Appellees, and Edward Williams; Oakleigh J. Thorne; Thorne Consultants, Incorporated; Rick Mandrell; Edward J. Carlough; Gordon Jones; Cavet Snyder; June M. Carlough, in her capacity as the Administratrix of the Estate of Edward J. Carlough; Judith L. Boyce Jones, in her capacity as representative of the estate of Gordon Jones, Defendants. Secretary of Labor, Amicus Curiae. Mark E. LeBLANC, Administrator of the Sheet Metal Workers' National Pension Fund; Sheet Metal Workers' National Pension Fund; John Harrington, in his capacity as a participant in the Sheet Metal Workers' National Pension Fund, 15 Garden Drive, Lynbrook, NY 11563, Plaintiffs-Appellants, and Arthur Moore, in his capacity as Trustee of the Sheet Metal Workers' National Pension Fund; Alan J. Chermak, in his capacity as National Pension Fund Trustee; Matthew B. Hernandez, Jr., in his capacity as National Pension Fund Trustee; Clinton O. Gowan, Jr., in his capacity as National Pension Fund Trustee; Ronald Palmerick, in his capacity as National Pension Fund Trustee; Bruce Stockwel |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: John O'Brien Clarke, Jr., Highsaw, Mahoney & Clarke, P.C., Washington, D.C., for Appellants. Elizabeth Hopkins, United States Department of Labor, Washington, D.C., for Amicus Curiae. Mark Fox Evens, Reid & Priest, L.L.P., Washington, D.C.; Thomas William Pahl, Kelly & Berens, P.A., Minneapolis, Minnesota, for Appellees. ON BRIEF: L. Pat Wynns, Melissa B. Kirgis, Highsaw, Mahoney & Clarke, P.C., Washington, D.C., for Appellants. J. Davitt McAteer, Acting Solicitor of Labor, Allen H. Feldman, Associate Solicitor for Special Appellate and Supreme Court Litigation, United States Department of Labor, Washington, D.C., for Amicus Curiae. Christopher Connolly, Brendan M. Donnell, Jr., Reid & Priest, L.L.P., Washington, D.C.; Timothy D. Kelly, Kelly & Berens, P.A., Minneapolis, Minnesota; Craig C. Reilly, Richards, McGettigan, Reilly & West, P.C., Alexandria, Virginia, for Appellees.
Before MURNAGHAN and HAMILTON, Circuit Judges, and MICHAEL, Senior United States District Judge for the Western District of Virginia, sitting by designation.
Affirmed in part, vacated in part, and remanded by published opinion. Judge HAMILTON wrote the opinion, in which Judge MURNAGHAN and Senior Judge MICHAEL joined.
In this appeal, we decide three issues of first impression in our circuit under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461. The first issue is whether ERISA § 514(a), 29 U.S.C. § 1144(a), which provides that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ...," preempts a state common law cause of action for fraud, pressed by a pension plan subject to ERISA, against a third party who is neither a fiduciary nor a party in interest with respect to the plan, but who allegedly fraudulently induced the pension plan to enter into a risky investment deal. We hold that ERISA § 514(a) does not preempt such a cause of action. The second issue is whether ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), which provides, in pertinent part, that "[a] civil action may be brought--... (3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of [ERISA] or the terms of the plan, or (B) to obtain other equitable relief (i) to redress such violations or (ii) to enforce any provisions of [ERISA] or the terms of the plan ...," provides a cause of action for appropriate equitable relief against a nonfiduciary, nonparty in interest, whose interests are adverse to the interests of a pension plan subject to ERISA, and who knowingly participated in a transaction prohibited by ERISA § 406(b)(2), 29 U.S.C. § 1106(b)(2). On this issue, we hold that ERISA § 502(a)(3) provides such a cause of action. The third issue is closely related to the second and asks whether ERISA § 502(a)(3) provides a cause of action for appropriate equitable relief against a nonfiduciary, nonparty in interest who knowingly gave a plan fiduciary consideration in connection with a transaction involving assets of the plan--a transaction prohibited by ERISA § 406(b)(3), 29 U.S.C. § 1106(b)(3). On this issue, we hold that ERISA § 502(a)(3) provides such a cause of action.
Appellant Sheet Metal Workers' National Pension Fund (the Pension Fund) is a multi-employer employee pension benefit plan, subject to regulation under ERISA. The Pension Fund is located in Alexandria, Virginia and in 1989, it had over $1.5 billion in assets. At all times relevant to this appeal, Raymond Sweeney served as the Pension Fund's general legal counsel.
In January 1989, the Pension Fund hired Edward Williams to manage its direct investment portfolio and to develop direct investment strategies consistent with the objectives of the Pension Fund. Edward Williams provided investment advice to the Board of Trustees of the Pension Fund (the Former Trustees) on a regular basis until he left the Pension Fund's employ in mid-1990. Edward Williams worked closely with Edward Carlough, Chairman of the Board of Trustees and General President of the Sheet Metal Workers' International Association, the Pension Fund's affiliated union.
Appellee Larken, Inc. is an Iowa corporation engaged in the business of managing hotel properties and has its principal place of business in Cedar Rapids, Iowa. Larken, Inc. owned many of the hotels that it managed. In 1989, most of the hotels managed by Larken, Inc. were under the Holiday Inn flag. Larken, Inc. is wholly owned by two brothers, Lawrence and Kenneth Cahill, both residents of Iowa.
In 1986, James Beck and Charles Underbrink, both residents of Minnesota, agreed to act as investment bankers for Larken, Inc. and the Cahills. In November 1987, James Beck and Charles Underbrink successfully arranged for a $60,750,000 mortgage due and payable in 1994 to refinance approximately $40,000,000 of debt on seventeen of the Holiday Inns owned by Larken, Inc. Those seventeen mortgaged hotels along with four other hotels carrying $5,600,000 in debt were offered to over 100 potential investors in 1988 through mid-1989 with the expectation of obtaining $40,000,000 by dividing the equity in the twenty-one hotels portfolio into $20,000,000 of equity and $20,000,000 in debt placements. Only a few potential investors expressed any interest in investing in this package.
In March 1989, Larken, Inc. had placed those twenty-one hotels into a limited partnership known as Larken Hotels Limited Partnership (LHLP). Larken, Inc. was the limited partner in LHLP, owning ninety-nine percent of the equity. A related corporation, Larken Properties, Inc. (LPI), was the general partner in LHLP and initially owned the remaining one percent. At all times relevant to this case, the Cahill brothers along with Charles Underbrink and James Beck were officers, directors and principal shareholders of LPI.
In late July 1989, James Beck approached Edward Williams about investing in the LHLP package that had been offered to the over 100 other potential investors. Beck also mentioned the possibility of the Pension Fund further investing in between ten and twenty hotels currently owned by insurance companies that needed asbestos abatement work. In a memorandum dated August 4, 1989, Edward Williams brought both investment possibilities to Chairman Carlough's attention and added that his "initial thought" was to "find[ ] a way to joint venture the hotels with their existing owners, get Cahill in the hotels as the operator/manager, have Beck help structure the transaction, and [our union] will do all the abatement and renovation work." (J.A. 1680). Edward Williams knew that Chairman Carlough wanted the union to perform asbestos abatement work and wanted the Pension Fund to invest in companies that performed such work. On August 10, 1989, Chairman Carlough replied by letter to Edward Williams' memorandum of August 4, 1989, stating that the first proposal did not excite him but that the second one, the one involving asbestos removal, "looks like something we ought to assiduously pursue." (J.A. 1357).
On August 8, 1989, James Beck wrote Edward Williams, combining the two investment proposals. According to James Beck, the ...
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