947 F.2d 1563 (11th Cir. 1991), 90-5445, Useden v. Acker
|Citation:||947 F.2d 1563|
|Party Name:||Neil A. USEDEN, As Trustee of The Air Florida System, Inc., Profit Sharing Plan & Trust, Plaintiff-Appellant, v. C. Edward ACKER, et al., Defendants, Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Sun Bank of Miami, N.A. and Sun Bank, Inc., Defendants-Appellees.|
|Case Date:||December 11, 1991|
|Court:||United States Courts of Appeals, Court of Appeals for the Eleventh Circuit|
[Copyrighted Material Omitted]
Edward A. Kaufman, Miami, Fla., for plaintiff-appellant.
Nina K. Brown, Irving M. Miller, Miami, Fla., for Sun Bank.
Joseph H. Lowe, Miami, Fla., for Greenberg Traurig.
Appeal from the United States District Court for the Southern District of Florida.
Before HATCHETT and BIRCH, Circuit Judges, and RONEY, Senior Circuit Judge.
BIRCH, Circuit Judge:
In this appeal we decide whether the conduct of a bank and a law firm renders those entities fiduciaries under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1461 (1988) ("ERISA" or "Act"). We also decide whether ERISA provides a right of action for monetary damages against non-fiduciaries who knowingly participate in a breach by a fiduciary.
Plaintiff-appellant Neil A. Useden, as trustee to a profit sharing plan and trust (the "Plan") governed by ERISA, appeals the grant of summary judgment by the United States District Court for the Southern District of Florida in favor of defendant-appellees Sun Bank and Greenberg, Traurig. In his Order on Motions for Summary Judgment, Judge Kenneth L. Ryskamp determined that, on the undisputed facts, neither Sun Bank as a lender to the Plan nor the law firm of Greenberg, Traurig as attorneys for the Plan were fiduciaries of the Plan within the meaning of ERISA. The court also determined that no cause of action lay against defendant Greenberg, Traurig as a non-fiduciary who knowingly participated in a breach by a fiduciary. Further, Judge Ryskamp believed that the undisputed facts did not support such non-fiduciary liability notwithstanding the rejection of plaintiff's legal theory.
In its appeal, the Plan additionally assigns error to the district court's denial of
leave to amend the Plan's complaint to include a cause of action for non-fiduciary liability against Sun Bank, the court's striking of the untimely affidavit of a former trustee to the Plan, the court's finding that extracontractual and punitive damages were unavailable under the ERISA theories asserted, and finally, the court's conclusion that Regulation U, 12 C.F.R. § 221 (1990) (pertaining to the Federal Reserve Board's "margin rules"), did not provide a borrower with a private right of action for damages. We agree with the district court's finding that the conduct of these defendants did not make them fiduciaries. We also hold that the plain meaning of ERISA does not impose liability on non-fiduciaries for acting with fiduciaries who breach fiduciary duties. Finding no error with respect to the remaining issues, we AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
Air Florida System, Inc. and Air Florida, Inc. (collectively "Air Florida") established the Air Florida System, Inc. Profit Sharing Plan and Trust in 1977 as an "eligible individual account plan" under ERISA. The Plan's mission was to absorb contributions made by Air Florida as an employer, to invest exclusively in the securities of Air Florida, and to distribute these securities to eligible Plan participants. Useden, the current named trustee of the Plan, was appointed in May 1984. Useden instituted the present action in January 1985 after determining that the Plan's assets had been dissipated through a series of financial transactions entered into by his predecessors. These transactions involved Sun Bank and Greenberg, Traurig in their respective capacities as a lending bank and attorneys to the company and the Plan.
Because Useden's predecessors were also officers of Air Florida, they not only presided over the financial decline of the Plan, they also over-saw the demise of the airline. The trustee of the Plan from creation to July 1982 was Eli Timoner, who was Air Florida's President and Chief Operating Officer and later its Chief Executive Officer and Chairman of the Board. Timoner's successor, Donald Lloyd-Jones, assumed his duties as trustee of the Plan some time after Timoner suffered a debilitating stroke in July 1982. Lloyd-Jones also assumed all of Timoner's corporate duties upon Timoner's stroke. 1
By the time Useden became Plan trustee in May 1984, Air Florida was in a protracted state of financial distress. A number of events precipitated the airline's crisis. The August 1981 departure of Chief Executive Officer and Chairman of the Board Edward Acker, a recognized industry personality who brought clout and expertise to the fledgling airline, was a highly adverse development. The August 1981 strike of the Professional Air Traffic Controllers and the attendant reductions in operating levels also had its costly effects. During 1981, in addition, Pan American World Airways waged a fare war on Air Florida's crucial New York to Miami route. Also damaging was the public relations disaster that ensued when an Air Florida aircraft crashed on takeoff from National Airport in January 1982. In July 1984, Air Florida filed for bankruptcy.
Within the context of the adverse events of the early 1980's and the accompanying financial decline of Air Florida, the Plan's investments in Air Florida securities also deteriorated. For their part in the transactions underlying these investments, Sun Bank and Greenberg, Traurig are now sued by the Plan under ERISA and related legal theories. The chief theories upon which Useden proceeds are conceptually unified insofar as they all require a determination that the defendants' professional functions so penetrated the governance of the Plan that they should share the potential liability of the Plan's named fiduciaries.
During the period relevant to this litigation, Sun Bank was in a commercial lending relationship with both the Plan and Air
Florida. Sun Bank's first pertinent involvement with the Plan revolved around a nine-month, short term loan of $1.6 million issued in June 1981. The Plan used the loan to purchase 76,000 discounted shares of Air Florida stock from Great American Life Insurance Company ("GALIC"). Because GALIC was then presently in the process of disposing of the greater part of its substantial holdings in Air Florida, the Plan was able to acquire GALIC's restricted (but preferred) shares at the same discounted price that GALIC had made available to another buyer. The Plan intended to repay the loan with the Air Florida contributions to the Plan earmarked to be made in early 1982. The collateral pledged to secure the loan was comprised of the 76,000 purchased shares plus 40,000 shares of common Air Florida stock already owned by the Plan.
At closing, Sun Bank took possession of the stock collateral. At that time, certain powers governed by the terms of the loan and banking industry custom vested in Sun Bank. First, the loan documents, in addition to the promissory note and related documents, included an agreement between Plan sponsor Air Florida and Sun Bank whereby the company would, in the event of a default on the loan, produce an S-16 registration statement as required under applicable securities laws. This statement would enable Sun Bank to sell the stock held as collateral; absent such registration, the loan collateral would be subject to a two-year holding period. Second, the bank gained authority to require additional collateral and to convert the preferred shares into common in the event of a monetary default. 2 The bank implemented these insecurity provisions within the framework of a 70% margin call, a convention in commercial lending whereby the Plan could be required to furnish additional collateral should the value of the collateral stock fall below 130% of the loan balance. 3
In January 1982, the value of the stock pledged as collateral on the loan fell below the 130% margin requirement. Thus, in the same month that Air Florida was greeted with the news that one of its airplanes had crashed on takeoff in Washington, D.C., the Plan was informed by Sun Bank that the contemporaneous decline in the market value of Air Florida stock necessitated additional collateral under the margin requirements of the loan. Due to this shortfall in collateral, Plan sponsor Air Florida undertook to guaranty the loan to the Plan.
In the opinion of the Plan attorneys, Greenberg, Traurig, ERISA prohibited the guaranty of a loan to a profit sharing plan by that plan's sponsor. 4 Air Florida, therefore, passed a resolution to effect the conversion of the existing profit sharing plan into an Employee Stock Ownership Plan ("ESOP"). Presumably, with the Plan structured as an ESOP, the guaranty by Air Florida would be permissible. Air Florida then guaranteed the $1.6 million loan. Due to the continuing decrease in the value of the stock originally pledged as collateral and the persistent out-of-margin status of the loan, both the Plan and Air Florida pledged additional collateral at various times during the first half of 1982.
Hopes for timely repayment of the outstanding loan obligation were finally dashed in early March 1982, when Air Florida informed Sun Bank that the airline would forego the contribution to the Plan slated for early 1982, manifestly rendering the Plan unable to satisfy its obligation on
the loan before the passing of the March 26 maturity date. Sun Bank, following negotiations with the Plan, renewed the underlying promissory note in June 1982 and set a due date of March 31, 1983. As a result of the negotiations that continued through this time, some $297,000 of cash collateral then being held was applied to reduce the outstanding loan balance of $1.6...
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