Brock v. Hendershott

• Decision Date: 24 February 1988
• Docket Number: No. 87-3151,87-3151
• Citation: 840 F.2d 339
• Parties: 9 Employee Benefits Ca 1579 William E. BROCK, Secretary of the United States Department of Labor, Plaintiff-Appellee, v. Kenneth HENDERSHOTT and Edgar Platel, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 339

840 F.2d 339

9 Employee Benefits Ca 1579

William E. BROCK, Secretary of the United States Department of Labor, Plaintiff-Appellee, v. Kenneth HENDERSHOTT and Edgar Platel, Defendants-Appellants.

No. 87-3151.

United States Court of Appeals Sixth Circuit.

Submitted Dec. 11, 1987.

Decided Feb. 24, 1988.

Kenneth Hendershott, pro se.

Edgar Platel, pro se.

Stephen Kessler, U.S. Dept. of Labor, Washington, D.C., for plaintiff-appellee.

Before KEITH and WELLFORD, Circuit Judges, and HULL, Chief District Judge. ^*

WELLFORD, Circuit Judge.

Defendants Hendershott and Platel appeal from a summary judgment decision against them by the district court. As the matter now stands, the defendants must disgorge profits obtained through abuse of their positions as union representatives in charge of negotiating various collective bargaining agreements. For the reasons set out below, we affirm.

I.

In this case the Department of Labor seeks repayment of sums realized by Kenneth Hendershott and Edgar Platel, two union representatives who benefited from their locals' choice of a dental association. The facts show the two defendants set up a corporation known as ISI, which was in the business of soliciting business for a cartel of dentists, known as the "Southmoor" program. For every group contract Southmoor received, ISI received a profit.

At the time in question Hendershott was International Vice President and Area Director for the State of Ohio for the United Paperworkers International Union (UPIU). In this capacity, he was the highest ranking union official in Ohio. Hendershott used his influence over Ohio's UPIU bargaining units to demand a dental plan from their various employers and to propose Southmoor as the dental program of choice. Edgar Platel, a UPIU representative and an assistant to Hendershott, handled certain bargaining unit negotiations. Platel was a coowner of ISI and involved in the Southmoor scheme contemplating profits for ISI.

According to the government, the actions taken by Hendershott and Platel violated the fiduciary duties set out in ERISA, 29 U.S.C. Sec. 1001 et seq., because Hendershott was a fiduciary as defined under 29 U.S.C. Sec. 1002(21) in accordance with a broad interpretation given that section. As such, Hendershott was charged with violating the absolute bar against self dealing set out in 29 U.S.C. Sec. 1106(b)(1) by realizing a financial gain, via ISI, for every bargaining unit joining Southmoor. ¹ The government asserted the money received by Platel was also subject to disgorgement, despite his nonfiduciary status, because he participated with Hendershott in his breach. The government alleged that Hendershott received $26,505.40 and Platel $29,644.03, from ISI.

The defendants appeared pro se in this case through most of the proceedings. When the government first moved for summary judgment on November 26, 1984 defendant Platel filed a response in which he asserted he was not an officer of UPIU; that he negotiated bargaining agreements as instructed by the union and not all of them resulted in a Southmoor program; that every bargaining unit was entitled to choose its own dental plan; that he was not aware that Hendershott was a fiduciary and was engaged in breaching his duties; and that he did not receive much money from ISI. In sum, Platel claimed he could not be held liable under ERISA because he was not a fiduciary, and because he did not knowingly aid Hendershott in the breach of his duties. Hendershott filed nothing in opposition. In spite of the fact that no affidavits were attached to Platel's response, the government's motion was denied and the case proceeded further.

The case then went to the final pretrial hearing on September 9, 1986. Hendershott did not appear because, as related by his letter to Judge Rubin, he could not afford the trip. The pretrial order set out the government's version of the facts, and noted Platel's various factual allegations. Finally, a pretrial order indicated summary judgment was appropriate, and gave notice that the defendants could move to modify the order or challenge the facts adopted. Neither defendant moved to challenge or modify the pretrial order and the government renewed its motion for summary judgment.

On November 4, 1986 Judge Rubin granted the government's motion against both defendants stating, "Defendant Platel indicated that he would file a response in opposition to the renewed motion for summary judgment, but he has not done so. Defendant Hendershott did not appear at the final pretrial conference. It is now accurate to say that the government's view of the facts in this case is no longer in dispute." The district court found both defendants liable, and ordered all money they had received to be disgorged. The district court took the additional step of enjoining both defendants from selling goods to, or acting as fiduciaries of an ERISA benefit plan for 5 years.

In response to this action both defendants filed notice of appeal and base their appeal on allegations that the circumstances of this case produce facts making summary judgment inappropriate.

II.

Judicial precedent clearly bears out the liability of the defendants under the facts presented. In Donovan v. Mercer, 747 F.2d 304 (5th Cir.1984), the court held that anyone who exercises authority over an employee benefit plan can properly be held an ERISA fiduciary because that term was intended to be interpreted broadly by Congress: "Thus, 'fiduciary' should be defined not only by reference to particular titles, such as 'trustee' but also by considering the authority which a particular person has or exercises over an employee benefit plan." Id. at 308. The ERISA statute provides that a person is a fiduciary when he "exercises any discretionary authority or discretionary control respecting ... management or disposition of its assets." 29 U.S.C. Sec. 1002(21)(A). The unchallenged facts show that Hendershott wielded considerable influence over the local unions as a high-ranking UPIU representative, and used this influence to direct the locals to choose Southmoor. For example, in one instance Hendershott actually took over as bargaining representative for one bargaining unit, which was not his usual practice, for the sole purpose of pushing the Southmoor program. For every addition to the Southmoor program, Hendershott received a profit by virtue of his ownership interest in ISI. We believe these actions clearly make out a violation of Sec. 1106(b)(1) and subject Hendershott to liability under the statute.

The facts produced here also show that Platel, as Hendershott's assistant, personally negotiated a number of agreements resulting in new members to the Southmoor program. Platel's duties as international union representative attached to Hendershott's office included bargaining on behalf of individual bargaining units. Several of the collective bargaining agreements resulting from his efforts had provisions designating Southmoor as the union's choice for dental service. Platel also directly benefitted from...