Jordan v. MI Conf. of Teamsters Welfare Fund

• Decision Date: 22 September 1999
• Docket Number: AFL-CIO,Nos. 98-1885,PLAINTIFFS-APPELLANTS,DEFENDANTS-APPELLEES,98-2113,s. 98-1885
• Citation: 207 F.3d 854
• Parties: (6th Cir. 2000) ROBERT JORDAN, ET AL. (98-1885),, INTERNATIONAL BROTHERHOOD OF TEAMSTERS,(98-2113), APPELLANT, v. MICHIGAN CONFERENCE OF TEAMSTERS WELFARE FUND, ET AL., Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 854

207 F.3d 854 (6th Cir. 2000)

ROBERT JORDAN, ET AL. (98-1885), PLAINTIFFS-APPELLANTS, INTERNATIONAL BROTHERHOOD OF TEAMSTERS, AFL-CIO (98-2113), APPELLANT, v. MICHIGAN CONFERENCE OF TEAMSTERS WELFARE FUND, ET AL., DEFENDANTS-APPELLEES.

Nos. 98-1885, 98-2113

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: September 22, 1999

Decided and Filed: March 24, 2000

Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 96-73113--Nancy G. Edmunds, District Judge. [Copyrighted Material Omitted] Charles R. Both (argued and briefed), Yablonski, Both & Edelman, Washington, D.C., Patrick J. Szymanski (argued), Baptiste & Wilder, Washington, D.C., Michael J. Passino (briefed), Lassiter, Tidwell & Hildebrand, Nashville, Tennessee, Anne Curry Thompson (briefed), Kelman, Loria, Simpson, Will, Harvey & Thompson, Detroit, Michigan, Elizabeth Grdina (briefed), International Brotherhood of Teamsters, Legal Department, Washington, D.C., for Appellants.

Mark D. Wagoner, Jr. (argued), Michael M. Briley (briefed), Shumaker, Loop & Kendrick, Toledo, Ohio, Michael J. Mills (briefed), Law Offices of Michael J. Mills, Bloomfield Hills, Michigan, Claudia D. Orr (briefed), Barris, Scott, Denn & Driker, Detroit, Michigan, Gerry M. Miller (briefed), Previant, Goldberg, Uelman, Gratz, Miller & Brueggeman, Milwaukee, Wisconsin, for Appellees.

Before: Merritt and Clay, Circuit Judges; Aldrich, District Judge.^*

Clay, Circuit Judge.

Plaintiffs Robert Jordan, David Iho, Patrick Reardon and Bill Sercombe appeal from the order entered by the district court approving a settlement of Plaintiffs' ERISA class action suit brought against Defendants, the Michigan Conference of Teamsters Welfare Fund, et al.,¹ wherein the court found that any remittance of attorney's fees advanced from funds awarded by the district court to the International Brotherhood of Teamsters AFL-CIO ("IBT"), constitutes a prohibited transfer of plan assets for the benefit of a party in interest. The IBT appeals from the order entered by the district court denying their motion to intervene in this action. For the reasons set forth below, we REVERSE the district court's order finding that Plaintiffs' remittance of attorney's fees to the IBT would constitute a prohibited transfer and AFFIRM the district court's order denying the IBT's motion to intervene in this action.

I.

Plaintiffs are participants in the Michigan Conference of Teamsters Welfare Fund, ("MCTWF"), which provides health care and other welfare benefits to approximately 17,000 members of the IBT. In July 1996, Plaintiffs filed a class action complaint against MCTWF and the other Defendants alleging violations of the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, and the Labor Management Relations Act, 29 U.S.C. § 185, in connection with Defendants' administration of this fund.

The parties subsequently agreed to settle all disputes and signed a comprehensive Stipulation and Agreement of Settlement on January 21, 1998 ("Settlement Agreement"). In relevant part, the Settlement Agreement provided that the MCTWF would pay Plaintiffs' counsel its reasonable attorney's fees. The agreement read in part as follows:

Counsel for Plaintiffs shall be entitled to seek and receive an award of reasonable attorney fees from defendant MCTWF to be determined by the Court. The amount of the attorney fees sought by Counsel for Plaintiffs will be on the basis of "lodestar" approach. See generally, Building Service Local 47 Cleaning Contractors Pension Plan, et al. v. Grandview Raceway, et al., 46 F.3d 1392 (6th Cir. 1995). Nothing in this paragraph shall be deemed a waiver of any right of any Settling Party or participant/beneficiary to object to the reasonableness of the fees. Payment of such fees awarded shall be the sole responsibility of MCTWF. No additional fees shall be sought by Counsel for Plaintiffs for activities connected with the monitoring of this Agreement after the approval of attorney fees in this case by the Court, as set forth above.

(J.A. at 190.) After a hearing on January 29, 1998, the district court certified Plaintiffs' class, tentatively approved the Settlement Agreement, and approved the proposed class notice in all respects.

Plaintiffs' counsel first disclosed the IBT's role in helping to finance the litigation in affidavits submitted in support of their request for attorney's fees. Defendants subsequently objected to Plaintiffs' attorney's fees request on grounds that any money paid to Plaintiffs' counsel that would then be turned over to the IBT as reimbursement would constitute a prohibited transaction under ERISA § 406(a)(1)(D), which prohibits a benefit plan from transferring assets to a party in interest. Although Defendants agreed with the stated value of Plaintiffs' counsel's services and had no objection to the amount requested on those grounds, they objected to any attorney's fee award that would compel the MCTWF to make a prohibited transaction under ERISA. A hearing was held in May of 1998, during which the district court considered objections to the Settlement Agreement, and Plaintiffs' motion for an award of attorney's fees and expenses.

In June of 1998, the district court issued a memorandum order granting final approval to the Settlement Agreement and awarding Plaintiffs attorney's fees and litigation expenses. The court agreed with Defendants that any payment ultimately remitted to the IBT would constitute a prohibited transaction under ERISA, and therefore held that the award could not include money that had been advanced to Plaintiffs' counsel by the IBT. Accordingly, the court instructed Plaintiffs' counsel to submit affidavits delineating the total sums advanced by the IBT, which the court would then subtract from the attorney's fees and costs award.

In July of 1998, following receipt of these affidavits, the district court entered its final judgment ordering the MCTWF to pay attorney's fees of $248,944.71 and litigation expenses of $5,649.68. This award did not include the sums advanced to Plaintiffs' counsel by the IBT as fees ($160,978.04) and expenses ($61,493.26). Shortly thereafter, the IBT filed a motion to intervene under Federal Rule of Civil Procedure 24(a)(2) in order to pursue an appeal to recover the money it had advanced to Plaintiffs' counsel. In September of 1998, the district court denied the IBT's motion on grounds that it was untimely and unnecessary, and because Plaintiffs could adequately represent the IBT's interests on appeal. These timely appeals followed.

II. ERISA § 406 and Prohibited Transactions

The Employment Retirement Insurance Security Act ("ERISA") § 406 prohibits plan fiduciaries from causing the benefit plan to engage in certain "prohibited transactions" because these transactions create a high potential for conflicts of interest. 29 U.S.C. § 1106(a) (1994).

Section 406(a) provides in part:

(a)Except as provided in 29 U.S.C. § 1108 [ERISA § 408]:

(1) A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect

(A) sale or exchange, or leasing, of any property between the plan and a party in interest;

(B) lending of money or other extension of credit between the plan and a party in interest;

(C) furnishing of goods, services, or facilities between the plan and a party in interest;

(D) transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan; or

(E) acquisition, on behalf of the plan, or any employer security or employer real property in violation of section 1107(a) of this title.

29 U.S.C. § 1106(a) (1994). Section § 1002(14)(D) defines a party in interest as including "an employee organization any of whose members who are covered by such plan." 29 U.S.C. § 1002(14)(D) (1994).

Statutory construction is a question of law that this Court reviews de novo. See EEOC v. Frank's Nursery & Crafts, Inc., 177 F.3d 448, 454 (6th Cir. 1999). Plaintiffs principally argue that the award of attorney's fees, which would then be turned over to the IBT, is not prohibited by § 406(a)(1)(D) because 1) the money would first be transferred to Plaintiffs' counsel (who is not a party in interest) before being remitted to the IBT; 2) the payment is permissible because the MCTWF lacks any "subjective intent" to benefit the IBT; 3) the transfer is permitted by ERISA § 502(g), which authorizes a district court to award attorney's fees to a victorious party in a lawsuit, even if that party qualifies as "party in interest" under § 406(a); and 4) such a transfer is expressly authorized by ERISA § 408 as an exemption from the "prohibited transfer" provision. We will address each of Plaintiffs' arguments in turn.

We first consider the Congressional intent of § 406. Section 406(a)(1) is designed to prohibit transactions that would clearly injure the plan. See Lockheed Corp. v. Spink, 517 U.S. 882, 888 (1996). Congress adopted § 406 to prevent employee benefit plans from engaging in transactions that would benefit parties in interest at the expense of plan participants and their beneficiaries. See id. at 888. This Court, as well as others, have noted that because § 406(a) characterizes per se violations, it should be interpreted narrowly. See United Steelworkers of Am., Local 2116 v. Cyclops Corp., 860 F.2d 189, 203 (6th Cir. 1988); Amato v. Western Union Int'l, Inc., 773 F.2d 1402, 1417 (2d Cir. 1985) (stating that a broad interpretation of the transactions prohibited by § 406 bars plaintiff's claim); Phillips v. Amoco Oil Co., 614 F. Supp. 694, 720 (N.D. Ala. 1985), aff'd, 799 F.2d 1464 (11th Cir. 1986) (stating that Congress did not intend a broad interpretation of § 406). Further the Supreme Court has maintained that ERISA must be strictly construed and that courts should not assume causes of action that are not primarily provided...