Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc.

Decision Date08 April 1983
Docket NumberNo. 81-1757,81-1757
Citation698 F.2d 802
Parties3 Employee Benefits Ca 2625, 4 Employee Benefits Ca 1783 CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND and Central States, Southeast and Southwest Areas Health and Welfare Fund, Plaintiffs- Appellees, v. CENTRAL TRANSPORT, INC., et al., Defendants-Appellants.
CourtU.S. Court of Appeals — Sixth Circuit

Patrick A. Moran (argued), Simpson, Moran & Burnett, David M. Black, Birmingham, Mich., for defendants-appellants.

Russell N. Luplow (argued), Diana L. S. Peters, Bloomfield Hills, Mich., for plaintiffs-appellees.

Before LIVELY and KENNEDY, Circuit Judges, and WILHOIT, * District Judge.

CORNELIA G. KENNEDY, Circuit Judge.

Central Transport, Inc., et al. (Transport) 1 appeals from an order of the District Court, 522 F.Supp. 658, holding that Central States, Southeast and Southwest Areas Pension Fund and Central States, Southeast and Southwest Areas Health and Welfare Fund (the Funds) have a statutory and contractual right to inspect the records of all of Transport's employees to determine whether they are entitled to be participants in the Funds so that Transport is responsible for making contributions to the Funds on their behalf.

The Funds were created by trust agreements between multi-employer associations to which Transport belongs and the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, and its various locals (the Union). Transport has assented to and agreed to be bound by the trust agreements creating the respective Funds. The Funds are employee benefit plans subject to the Employee Retirement Income Security Program Act (ERISA), 29 U.S.C. Secs. 1001-1461.

Transport is a signatory to the National Master Freight Agreement and/or supplemental, individual agreements to which the Union is a party. The collective bargaining agreements require that Transport make payments to the Funds on behalf of employees covered by the collective bargaining agreements. An employee is covered by the collective bargaining agreements if engaged in a job classification described in the National Master Freight Agreement and/or supplements. Union membership is not a prerequisite to coverage so that both union and non-union employees are covered if their job classification is so described. These employees are eligible for pension, health and welfare benefits from the Funds.

A substantial percentage of Transport's employees are not covered by the collective bargaining agreements. Transport is not required to make contributions to the Funds with respect to these individuals. Instead, Transport makes contributions to a company benefit pension plan which is also an ERISA plan. The present controversy relates only to an audit sought by the Funds.

In January 1980, the trustees of the Funds authorized and commenced an audit of Transport to verify the accuracy of Transport's reporting of covered employees. Concern over the accuracy of Transport's reporting was triggered by the Funds' receipt of contributions for four employees of Transport who were on the office payroll as well as instances of apparent underreporting for covered employees. In response, the Funds sought quarterly reports, insurance exception listings and other information which included many documents relating to non-covered employees outside of the scope of the collective bargaining agreements as well as those covered employees within its scope. When Transport refused to disclose information about Transport employees without a prior determination by Transport and the Union that they were actually covered by the collective bargaining agreements, the Funds terminated the audit.

The Funds instituted this action seeking a preliminary injunction to require Transport to provide the Funds with the names, current addresses and social security numbers of all of its employees, i.e. covered and non-covered, along with the hours worked and verification documents. The Funds argued it had a statutory and contractual right to inspect the records of all of Transport's employees. The statutory right is allegedly derived from ERISA, 29 U.S.C. Secs. 1102-1105, which delineates trustee responsibilities and powers, and 29 U.S.C. Sec. 1059 which imposes a duty of responsibility and record keeping on employers with respect to all employees who are participants in an employee benefit plan. The contractual right is allegedly derived from Article III, section 5 of the trust agreements, which provides for the production of records and Article IV of the trust agreements which sets forth the trustees' powers and duties. The Funds also asserted a common law right to all records under general fiduciary principles. Transport contested these assertions on the grounds that the audit of all employee records was outside of the statutory provisions of ERISA and the contractual agreements of the parties as embodied in the collective bargaining agreements and the trust agreements. Transport raised the confidentiality of non-covered employee records as a further defense.

These legal issues were presented to the District Court in the form of cross-motions for summary judgment. The District Court granted the Funds' motion for summary judgment on the grounds that covered and non-covered employees of Transport were within the definition of "employee" contained in the trust agreements and that the audit was authorized by ERISA and the contractual agreements between the parties. This decision allowed the Funds complete access to the records of all of Transport's employees. Transport appealed and the District Court granted a stay of its order pending appeal.

To the extent the District Court considered the audit of the records of all of Central's employees to be sanctioned by statute, the question is one of law and is freely reviewable. Nash v. Farmers New World Life Insurance Co., 570 F.2d 558 (6th Cir.), cert. denied, 439 U.S. 822, 99 S.Ct. 89, 58 L.Ed.2d 114 (1978). The constructions of the collective bargaining agreements and the trust agreements also raise issues of law and are freely reviewable. See Industrial Equipment Co. v. Emerson Electric Co., 554 F.2d 276, 283 (6th Cir.1977). The propriety of the trustees' decision to order an audit, however, once a determination has been made that such an audit is authorized under the parties' agreements as a matter of law, is limited to a determination of whether the trustees' decision is arbitrary, capricious or in bad faith. Van Gunten v. Central States, Southeast and Southwest Areas Pension Fund, 672 F.2d 586 (6th Cir.1982).

I. Statutory Right

The Funds allege that they have a statutory right to audit the records of all of Transport's employees under ERISA, 29 U.S.C. Secs. 1102-1105. It is a declared policy of ERISA to protect the interests of participants in employee benefit plans by requiring the disclosure and reporting to participants and beneficiaries of financial information and by establishing standards of conduct, responsibility and obligation for fiduciaries of employee benefit plans. Id. Sec. 1001(b). ERISA imposes special responsibilities on the trustees who administer employee benefit plans and the employers, such as Transport, who contribute to them. Trustees have the discretion and authority to manage and control trust assets. Id. Secs. 1102-1103. They are held to the high standards of fiduciaries, id. Sec. 1104, and are governed by principles applicable to the common law of trusts. [1974] U.S.Code Cong. & Ad.News 4639, 5083.

A trustee's duties as a fiduciary, however broad, are nevertheless limited in two significant respects. Under 29 U.S.C. Sec. 1104(a)(1), a fiduciary must "discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries ...." (emphasis added). Non-participants and non-beneficiaries are outside the scope of this statutorily imposed duty. In addition, 29 U.S.C. Sec. 1104(a)(1)(D) imposes the further restriction that a fiduciary discharge his duties "in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of ... [ERISA]." 2 (emphasis added) The documents and instruments governing the plan include the collective bargaining agreements entered into between Transport and the Union and the trust agreements.

The statutory provisions of ERISA do not, in themselves, impose upon trustees the duty to audit records of all of Transport's employees to independently verify whether any given employee is covered by the collective bargaining agreements. Instead, the provisions of ERISA require reference to the terms of the collective bargaining agreements and the trust agreements to determine who are the participants and beneficiaries to whom statutorily imposed duties are owed and to the terms of the trust agreements to determine what the precise nature of those duties are. Therefore, the District Court erred as a matter of law in finding the audit to be statutorily authorized.

II. Contractual Duties

The Funds argue that Article III, section 5 of the trust agreements, gives it a contractual right to audit the records of all of Transport's employees. This provision states:

Production of Records--Each Employer shall promptly furnish to the Trustees, upon reasonable demand, the names and current addresses of its Employees, their Social Security numbers, the hours worked by each Employee and such other information as the Trustees may reasonably require in connection with the administration of the Trust. The Trustees may, by their representatives, examine the pertinent records of each Employer at the Employer's place of business whenever such examination is deemed necessary or advisable by the Trustees in connection with the proper administration of the Trust. (emphasis added)

Contrary to the Funds' assertions and the...

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