Giardono v. Jones, 87-3112

• Decision Date: 01 February 1989
• Docket Number: No. 87-3112,87-3112
• Citation: 867 F.2d 409
• Parties: , 57 USLW 2490, 111 Lab.Cas. P 11,003, 10 Employee Benefits Ca 1913 Sam GIARDONO, et al., Plaintiffs-Appellees, v. George M. JONES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 409

867 F.2d 409

104 A.L.R.Fed. 597, 57 USLW 2490, 111

Lab.Cas. P 11,003,

10 Employee Benefits Ca 1913

Sam GIARDONO, et al., Plaintiffs-Appellees, v. George M. JONES, Defendant-Appellant.

No. 87-3112.

United States Court of Appeals,

Seventh Circuit.

Argued Sept. 23, 1988.

Decided Feb. 1, 1989.

James M. Gecker, Ross & Hardies, Chicago, Ill., for defendant-appellant.

Marc M. Pekay, Marc M. Pekay, P.C., Chicago, Ill., for plaintiffs-appellees.

Before WOOD, Jr., EASTERBROOK, Circuit Judges, and GORDON, Senior District Judge. ^*

MYRON L. GORDON, Senior District Judge.

This appeal requires the court to explore certain boundaries of the subject matter jurisdiction granted to the federal district courts by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1001, et seq. The specific issues to be resolved are: (1) whether the district court erred in dismissing the appellant's counterclaims; and (2) whether the district court abused its discretion in denying attorney's fees to the appellant. We hold that the district court lacked subject matter jurisdiction over the appellant's counterclaim under ERISA, and it properly dismissed the pendent counterclaims; in addition, it did not abuse its discretion in denying attorney's fees to the appellant.

BACKGROUND

Prior to 1973, the appellant, George Jones, was a member of the Operative Plasterers and Cement Finishers International Union Local 382 (the "union") and a participant and beneficiary of the Construction Industry Welfare Fund of Rockford and the Construction Industry Retirement Fund (the "fund"). In 1973, Mr. Jones ceased to be an employee when he went into the cement contractor business as a sole proprietor and became an employer. However, he wanted to continue the health During that period the union did nothing to enforce the agreement. After ten years, the trustees of the fund brought the underlying action to recover employee benefit contributions which would have been owed had the agreement that Mr. Jones signed been enforceable. The trustees based jurisdiction for their complaint on Sec. 301 of the Labor Management Relations Act, 29 U.S.C. Sec. 185, and on Sec. 502 of ERISA, 29 U.S.C. Sec. 1132.

insurance benefits that he had received as a union member, so at the behest of the union he entered into a written agreement with the union which provided that, as an employer, he recognized the union and adopted the area master contract. For ten years after signing the agreement, Mr. Jones paid for and received health insurance coverage, but he did not honor the union contract and employed only nonunion labor.

George Jones responded to the suit with the counterclaims that are now at issue in this appeal. The counterclaims asserted that the plaintiffs violated their fiduciary duty owed to Mr. Jones under both ERISA and the state common law and, also that the plaintiffs fraudulently induced Mr. Jones to subscribe to the collective bargaining agreement with the union. The invoked grounds for jurisdiction over the counterclaims were ERISA and the doctrine of pendent jurisdiction.

The district court dismissed Mr. Jones' ERISA counterclaim on the ground that, as an employer, he lacked standing to bring an ERISA action. The pendent state counterclaims were dismissed for failure to state a cause of action against the trustees. The district court held that the fraud counterclaim failed for want of specificity against the trustees. The district court noted that although the claim "conceivably" stated a cause of action against the union, the union was not a party to the case.

After a bench trial on the merits of the complaint, judgment was entered for defendant Jones. The district court held that the evidence did not establish a contract, and therefore, the defendant Jones was not bound by the obligations of the area master collective bargaining agreement. The district court dismissed the counterclaims and then denied Mr. Jones' petition for attorney's fees.

ERISA JURISDICTION

The appellant urges that he properly brought the ERISA counterclaim either as a plan participant with an express right of action, or as an employer with an implied right of action. The jurisdictional provision of ERISA provides for actions by enumerated parties:

... the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, or fiduciary.

29 U.S.C. Sec. 1132(e)(1) [emphasis added].

First, the appellant argues that he has standing to bring an ERISA counterclaim as a plan participant, notwithstanding the fact that he is also an employer. A participant includes "any employee or former employee of an employer, or any member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan ..." 29 U.S.C. Sec. 1002(7). There is no question that Mr. Jones had previously qualified as a plan participant while he was an employee and a member of the union. The question is whether he continued to be a plan participant once he became an employer. In other words, does the statutory definition of a plan participant encompass a former employee who has become an employer and, nevertheless, is permitted to purchase plan coverage in his status as employer?

An employer cannot ordinarily be an employee or participant under ERISA. It is a fundamental requirement of ERISA that "... the assets of a plan shall never inure to the benefit of any employer ...". 29 U.S.C. Sec. 1103(c)(1). In Peckham v. Board of Trustees, Etc., 653 F.2d 424, 427 (10th Cir.1981), the court held that this statutory mandate precluded sole proprietors from having the dual status of employer-employee The appellant, however, contends that it has been held that an employer may have "dual status" standing as a fiduciary to sue under ERISA. Ed Miniat, Inc. v. Globe Life Ins. Group, 805 F.2d 732 (7th Cir.1986); U.S. Steel Corp. v. Pennsylvania Human Relations Commission, 669 F.2d 124 (3rd Cir.1982); Great Lakes Steel v. Deggendorf, 716 F.2d 1101 (6th Cir.1983). Therefore, the appellant urges that the courts have recognized a general principle of multiple roles for employers which permits an employer to have standing whenever he also has the status of a plan participant.

for purposes of ERISA. Accord Chase v. Trustees of W. Con. of T. Pension T.F., 753 F.2d 744, 748 (9th Cir.1985).

However, the fact that an employer may have standing as a fiduciary does absolutely nothing the advance the argument that an employer may similarly have standing as a participant. When an employer files suit as a fiduciary, he acts for the benefit of plan participants and beneficiaries; he does not act in his own interest and thus does not risk running afoul of the requirement that the assest of a plan may not inure to the benefit of an employer. 29 U.S.C. Sec. 1103(c)(1); see also, H.C.A. Health Services v. Brown, No. 87-C-4029, slip op at 3 (N.D.Ill. June 24, 1988) ("an independent contractor's decision to independently subscribe to a policy shared by the company with which it has a contractual relationship does not transform the contractor into an employee for purposes of ERISA"); R.M. Bowler Contract Hauling v. Central States, Etc., 547 F.Supp. 783, 784 (S.D.Ill.1982) ("employers who contribute to employee benefit plans do not fit into any of the four limited categories of plaintiffs"). As pointed out by the court in Peckham, this view is reflected in the regulations promulgated by the Secretary of Labor to implement the Act. Id. at 427. Such regulations exclude from the definition of an employee any individual who wholly owns a trade or business, whether incorporated or unincorporated. 29 C.F.R. Sec. 2510.3-3(c)(1). ERISA was enacted by Congress for the purpose of protecting the interests of employees and their beneficiaries in employee benefit plans. 29 U.S.C. Sec. 1001(a).

The appellant next argues that, as an employer, he has an implied cause of action under ERISA because he was injured by the actions of the plan trustees and that those injuries fell within the zone of interests protected by ERISA. In support of this proposition, the appellant cites Fentron Industries v. National Shopmen Pension Fund, 674 F.2d 1300 (9th Cir.1982). In Fentron, the court of appeals for the ninth circuit stated:

Finally, we do not believe that Congress, in enacting ERISA, intended to prohibit employers from suing to enforce its provisions. The omissions of employers from 29 U.S.C. Sec. 1132 is not significant in this regard. There is nothing in the legislative history to suggest either that the list of parties empowered to sue under this section is exclusive or that Congress intentionally omitted employers. See, e.g., H.R.Rep. No. 1280, 93d Cong., 2d Sess. 326-328 (1974), reprinted in Subcomm. on Labor of the Senate Comm. on Labor and Public Welfare, 94th Cong., 2d Sess., Legislative History of the Employee Retirement Income Security Act of 1974, at 4593-95 (1976). In view of the intent of Congress to protect employer-employee relations, we hold that the statute does not prohibit employers from suing to enforce its provisions. Fentron, at 1305.

The Fentron court determined that a non-enumerated party may have standing to sue under ERISA if the non-enumerated party satisfies the three-part test derived from Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970). Fentron, at 1303.

The approach taken by the Fentron court has generally been rejected by most other courts on the ground that it improperly assumes a grant of subject matter jurisdiction. See Grand Union Co. v. Food Employers Labor Relations Assn., 808 F.2d 66, 71 (D.C.Cir.1987); Northeast the Fentron court applied an inappropriate standard in resolving this issue. We focus not on whether the legislative history reveals that Congress intended to prevent actions by...