329 F.3d 317 (2nd Cir. 2003), 02-9005, Gerosa v. Savasta & Co., Inc.

Docket Nº:02-9005
Citation:329 F.3d 317
Party Name:Gerosa v. Savasta & Co., Inc.
Case Date:May 19, 2003
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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329 F.3d 317 (2nd Cir. 2003)

Alfred G. GEROSA, Joseph Mitrione, John J. Pylilo, Paul M. Manita, Angelo Scagnelli, Bert Gallo, John Pagliuca, Trustees, Cement Masons' Local 780 Pension Fund, Plaintiffs-Appellees-Cross-Appellants,

v.

SAVASTA & COMPANY, INC., Defendant-Appellant-Cross-Appellee,

Neil J. Savasta, Mark Schor, Defendants.

No. 02-9005, 02-9007.

United States Court of Appeals, Second Circuit

May 19, 2003

Argued: March 25, 2003.

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[Copyrighted Material Omitted]

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Mark J. Alonso, Alonso, Andalkar & Kahn, P.C., New York, NY, for Defendant-Appellant-Cross-Appellee Savasta & Company, Inc.

Richard H. Markowitz (Nancy A. Walker, on the brief), Markowitz & Richman, Philadelphia, PA, for Plaintiffs-Appellees-Cross-Appellants Alfred G. Gerosa, Joseph Mitrione, John J. Pylilo, Paul M. Manita, Angelo Scagnelli, Bert Gallo, and John Pagliuca, Trustees, Cement Masons' Local 780 Pension Fund.

Elizabeth Hopkins, Counsel for Appellate and Special Litigation (Eugene Scalia, Solicitor of Labor, Timothy D. Hauser, Associate Solicitor for Plan Benefits Security Division, Paul C. Adair, Trial Attorney, on the brief), U.S. Department of Labor, Office of the Solicitor, Washington, D.C., for Amicus Curiae Elaine L. Chao, Secretary of Labor.

Before: KATZMANN, B.D. PARKER, and RAGGI, Circuit Judges.

KATZMANN, Circuit Judge.

The Cement Masons' Local 780 Pension Fund is a retirement benefits plan established under the Employee Retirement Income Security Act ("ERISA"). The Plaintiffs, Alfred G. Gerosa and other trustees of the Fund, allege that, as a result of the negligence of their actuary, the Defendant, Savasta & Company, Inc., the Fund is now dangerously underfunded. Accordingly, they brought suit against Savasta under ERISA's civil enforcement section, 29 U.S.C. § 1132(a)(3) (2000), as well as under several state-law theories of liability. Following the Defendant's 12(b)(6) Motion, the District Court for the Southern District of New York (Alvin K. Hellerstein, J.) dismissed the Trustees' state-law claims as preempted, but denied the motion to dismiss the claim under ERISA. The District Court's dual determinations relied in large part on our opinion in Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270 (2d Cir. 1992). Because we now conclude that Diduck has been superseded by subsequent decisions of the Supreme Court, we must reverse both holdings and remand for further proceedings.

Background

The individual plaintiffs in this case are each trustees of the Plaintiff, Cement Masons' Local 780 Pension Fund, a multi-employer pension plan organized pursuant to the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 (2000 & Supp.2002). Among its numerous other demands, ERISA requires the administrator of each plan annually to obtain and publish an "actuarial statement," which is in essence an analysis of the plan's financial condition by a professional actuary. Id. §§ 1023(a)(4)(A), (d).

The Plaintiffs' Complaint, which for purposes of this appeal we accept as true, alleges that in fulfillment of their duties, the Trustees hired the Defendant, Savasta & Company, Inc., to serve as the Plan's actuary and prepare its actuarial statements. In each of its actuarial statements from 1994 through 1997, Savasta reported that the Plan was actually over-funded. (In other words, the Plan's assets were more than sufficient to pay all projected benefits claims.) The Plaintiffs allege that, in reliance on this information, they amended the Plan to distribute the excess funding to the Plan beneficiaries in the form of improved benefits. Savasta's analysis

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at the time indicated that, even under the more generous provisions, the plan was still overfunded by a small margin.

Savasta's actuarial statement at the end of the next year, 1998, however, revealed a dramatically different situation. Now, Savasta projected, the Plan's assets would cover only 71.3% of the Plan's projected liabilities. Savasta's explanation for this disparity, according to the Complaint, was that there had been a "data correction." When pressed for more information, Savasta reported that it could not offer any better explanation, because all of its records upon which it had based its pre-1999 calculations were missing.

The Trustees subsequently filed this suit, on behalf of themselves and the Plan, seeking to recover from Savasta the anticipated shortfall between the Plan's liabilities and its assets. 1 The Complaint sought redress under the civil enforcement provisions of ERISA, see 29 U.S.C. § 1132(a)(3), as well as under state-law theories of promissory estoppel, breach of contract, and professional malpractice. 2

Savasta then moved to dismiss the Complaint, pursuant to Fed.R.Civ.P. 12(b)(6), arguing that the remedies sought by the Plaintiffs are not available under ERISA, and that ERISA preempts the state law claims. The District Court denied the motion to dismiss the ERISA claim, holding that the Plaintiffs could obtain consequential damages under the statute. See Gerosa v. Savasta, 189 F.Supp.2d 137, 152 (S.D.N.Y.2002). However, the District Court granted the motion to dismiss Plaintiffs' state-law claims, finding them preempted by ERISA. Id. It also granted both parties' motions to file an interlocutory appeal, pursuant to 28 U.S.C. § 1292(b). Id. Another panel of this Court agreed that we should hear both Savasta's appeal and the Plaintiffs' cross-appeal. The Secretary of Labor filed an amicus brief urging us to reverse the district court, and we invited the Secretary to participate in oral argument.

Discussion

I.

ERISA places great responsibilities upon the fiduciaries of a plan to protect the interests of the plan's beneficiaries. See, e.g., 29 U.S.C. §§ 1101-1112 (describing some responsibilities of ERISA fiduciaries). Correspondingly, it also gives to fiduciaries a wide array of powers to superintend the operation of the plan. Most pertinently for the Plaintiffs here, fiduciaries may bring suit in federal court "to enjoin any act or practice which violates any provision of [ERISA Title I] or the terms of the plan, or ... to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of [ERISA Title I] or the terms of the plan." 29 U.S.C. § 1132(a)(3). 3 Savasta

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concedes that some actuarial conduct is regulated by ERISA, and therefore that its negligence is at least arguably an act or practice which violates the statute. 4

The core of the dispute here is thus not whether ERISA authorizes suit against Savasta, but rather whether the remedy the Plaintiffs seek falls within such "other appropriate equitable relief" as they may obtain. The Complaint asks for an order directing "defendants to reimburse the plaintiffs for the shortfall the Pension Fund will experience as a result of defendants' violation of their duties under ERISA." In determining the propriety of a remedy, we must look to the real nature of the relief sought, not its label. See Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002); Mertens v. Hewitt Assocs., 508 U.S. 248, 255, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993).

Section 1132(a)(3) permits money awards only in very limited circumstances. Classic compensatory and punitive damages are never included within "other appropriate equitable relief." Id.; see Lee v. Burkhart, 991 F.2d 1004, 1011 (2d Cir. 1993). With regard to non-fiduciary defendants, we have said that the "only conceivable equitable claim" for cash money lies under the antique equitable remedy of restitution. Strom v. Goldman, Sachs & Co., 202 F.3d 138, 144-45 (2d Cir. 1999) (citing Geller v. County Line Auto Sales, Inc., 86 F.3d 18 (2d Cir. 1996)). In order to make out a claim for restitution, a plaintiff must show that the defendant has unjustly received from the plaintiff a benefit, such as a payment, see Great-West, 534 U.S. at 213, 122 S.Ct. 708; Geller, 86 F.3d at 22, or that the defendant holds funds or property that in good conscience should belong to the plaintiff, see Great-West, 534 U.S. at 213, 122 S.Ct. 708.

We agree with the District Court that the Plaintiffs have not alleged sufficient facts to make out a claim for restitution. The moneys sought by the Plaintiffs were never in Savasta's possession; rather, they are simply consequential damages resulting from Savasta's alleged negligence. 5 Like the defendants in Geller,

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Savasta was never "unjustly enriched," and therefore no restitution claim can lie against it. 86 F.3d at 22.

Although the District Court in its thoughtful decision found that the Plaintiffs have no restitution claim, it concluded, in reliance on our opinion in Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270 (2d Cir. 1992), that it had the authority to imply a damages remedy under ERISA. See Gerosa v. Savasta, 189 F.Supp.2d 137, 150-52 (S.D.N.Y.2002). In Diduck, 974 F.2d at 274-75, we considered a claim by participants and beneficiaries in an ERISA plan against a non-fiduciary, who was alleged to have knowingly participated in a plan fiduciary's breach of duty. We acknowledged that ERISA does not expressly or even impliedly create a right of action in those circumstances. See id. at 280. We found, however, that the underlying purposes of ERISA would be frustrated in the absence of such liability. See id. at 281. Accordingly, we concluded that there was a "need for interstitial lawmaking," and determined that we would "recogniz[e] a federal common law right of action in favor of plan participants against non-fiduciaries." Id. at 280-81.

We think, however, that this aspect of Diduck has not survived subsequent Supreme Court determinations. In Mertens, the Court...

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