Boucher v. Williams, CIV. 96-283-B.

• Decision Date: 05 May 1998
• Docket Number: No. CIV. 96-283-B.,CIV. 96-283-B.
• Citation: 13 F.Supp.2d 84
• Parties: Raymond BOUCHER, et al., Plaintiffs, v. Richard WILLIAMS, et al., Defendants.
• Court: U.S. District Court — District of Maine

13 F.Supp.2d 84

Raymond BOUCHER, et al., Plaintiffs, v. Richard WILLIAMS, et al., Defendants.

No. CIV. 96-283-B.

United States District Court, D. Maine.

May 5, 1998.

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Marcia Cleveland, Brunswick, Tybe Brett, Pittsburgh, PA, for Plaintiff.

David McCarry, Robert M. Cheverie & Associates, East Hartford, CT, Melissa Hewey, Drummond, Woodsum, Plimpton & Macmahon, Portland, ME, for Defendants.

ORDER AND MEMORANDUM OF DECISION

BRODY, District Judge.

Plaintiffs, Raymond Boucher and Alden R. Small, bring this ERISA-based class action against Defendants, Richard Williams, Douglas A. Hersom, and Richard C. McCubrey (the "Trustees"), Insurance Programmers, Inc. ("IPI"), and the U.A. Local 783 Health and Welfare Fund (the "Fund" or the "Trust"). Plaintiffs allege breach of fiduciary duty in violation of ERISA § 404, 29 U.S.C. § 1104 (Count I), failure to provide Plaintiffs with notice of a material modification of their welfare benefits plan in violation of ERISA §§ 101, 102, 104, 29 U.S.C. §§ 1021, 1022, 1024 (Count II), failure to report material plan modifications in financial statements filed with the Department of Labor in violation of ERISA § 103, 29 U.S.C. § 1023 (Count III), failure of the plan administrator to notify Plaintiffs of their COBRA rights in violation of 29 U.S.C. § 1166 (Count IV), illegal imbalance between Union and management Trustees resulting in undue influence of Union Trustees in the management of the Fund in violation of § 302 of the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 186(c)(5)(B) (Count V), and failure to provide Plaintiffs with requested plan documents in violation of ERISA §§ 104, 105(a), 29 U.S.C. §§ 1024, 1025(a)(Count VI).

In separate motions Plaintiffs have moved for summary judgment on Counts I, II, and VI, and for class certification. Defendants have moved for summary judgment on all counts.

I. BACKGROUND

This case centers around the management of the U.A. Local 783 Health and Welfare Fund, established in 1977 pursuant to a collective bargaining agreement between U.A Local 783 ("the Union") and Union employers to provide health insurance and related benefits to employees of those Union employers ("participants"). Pls.' Statement of Material Fact ("Pls.' SOF") ¶¶ 4, 5; Defs.' Statement of Material Fact (9/30/97) ("Defs.' SOF 1") ¶ 1. Plaintiffs Boucher and Small were two such participants.

The Fund was created by an Agreement and Declaration of Trust on December 1, 1977, and was extended by an Amended and Restated Agreement and Declaration of Trust (the "Plan") adopted on January 1, 1990. Pursuant to the Plan, which qualifies as a multi-employer health and welfare plan under the Employee Retirement Income Security Act ("ERISA"). 29 U.S.C. § 1002(37), employers are required to make periodic payments to the Fund on behalf of their employees. Plan Art. IV. These payments are then placed in individual participants' "allocation accounts" by the Trustees of the Fund. Plan Art. II, § 4. The allocation accounts are drawn upon to pay health insurance premiums for each participant or to reimburse the participant for out-of-pocket medical expenses. The allocation accounts may also be used for other health related programs including group life insurance, payment of disability benefits, payment of death benefits, and asbestos screening.

The Plan requires that the Fund be managed by four Trustees, half appointed by the Union and half by the employers. Plan Art. V, § 1. Since July 9, 1991, the Fund has been administered by three Trustees, rather than the four required by the Plan: Defendant Richard Williams, a Union Trustee and business manager of the Union, Defendant Douglas Hersom, also a Union Trustee, and Defendant Richard McCubrey, an employer Trustee. Defs.' SOF 1 ¶¶ 3, 4. In addition to maintaining allocation accounts, the Trustees are required to maintain an "administrative account," consisting of the remainder of the Trust, including all earnings on Trust assets. Administrative expenses of the Trust and benefit payments and expenses not properly allocable to the allocation accounts must be charged to the administrative account. Id. The Fund is administered by Defendant IPI. IPI, under the direction of the Trustees, is responsible for the accounting, bookkeeping, and clerical services of the Trust Fund as well as all reporting and disclosure requirements imposed by ERISA. Plan Art. I, § 6.

Plaintiffs Boucher and Small worked for Union employers who made contributions to the Fund on their behalf that were placed in the appropriate allocation accounts. When Boucher resigned from the Union, and presumably from a contributing employer, in February, 1991, the balance in his account was allegedly $18,331.26. Pls.' SOF ¶ 14. Part of Boucher's balance was used after his retirement to pay his group health insurance premiums through 1993. Pls.' SOF ¶ 15. When Small terminated his membership in the Union on April 1, 1993, the remaining balance in his account was allegedly $6,000.00. Small, upon leaving the Union, withdrew from group health coverage and elected to "freeze" his remaining balance for reimbursement of out-of-pocket medical expenses. Pls.' SOF ¶ 16.

In June of 1993, the three Trustee Defendants amended the Plan, adding the following paragraph to Art. II, § 5:

Notwithstanding the foregoing, if a Participant who has been a member of the Union shall cease to be a member of the Union (other than by his death), he (and his beneficiaries) shall cease to be eligible for all benefit programs of the Fund as of the date he ceases to be a member of the Union (or as of January 1, 1994 in the case of any such Participant who has ceased to be a member of the Union prior to January 1, 1994). In such event, all amounts in his allocation account shall be transferred to the administrative account.

Defs.' Ex. 10. Pursuant to this amendment (the "1993 Amendment"), on January 1, 1994, the remaining balances in Plaintiffs' allocation accounts were forfeited and the Fund ceased making payments for Plaintiffs' benefit programs.

Plaintiffs originally brought this action solely on behalf of participants who had their allocation accounts forfeited by the 1993 Amendment, and their beneficiaries. After discovery, Plaintiffs amended their Complaint to allege that Defendants breached their fiduciary duties (Count I) to all participants in the Fund, as well as those whose accounts were forfeited, by generally mismanaging the Fund. As such, all counts are brought by those participants whose accounts were forfeited, and Count I is also brought on behalf of all participants in the Fund.

Plaintiffs seek various forms of equitable relief including a declaratory judgment, invalidation of the 1993 Amendment, an accounting, an order to make good to the Trust any and all losses resulting from breach of fiduciary duties, removal of the Trustees and other fiduciaries, and "such other equitable/remedial relief as appropriate" under ERISA § 409, 29 U.S.C. § 1109. Plaintiffs also ask the Court to impose statutory penalties of $100.00 per day from the day of Defendants' alleged failure to comply with requests for information under ERISA § 502(c)(1), 29 U.S.C. § 1132(c)(1).

II. SUMMARY JUDGMENT

Summary judgment is appropriate in the absence of a genuine issue as to any material fact and when the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). An issue is genuine for these purposes if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A material fact is one that has "the potential to affect the outcome of the suit under applicable law." Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st Cir. 1993). For the purposes of summary judgment the Court views the record in the light most favorable to the nonmoving party. See McCarthy v. Northwest Airlines, Inc., 56 F.3d 313, 315 (1st Cir.1995).

III. DISCUSSION

Count I

Both Plaintiffs and Defendants move for summary judgment on Count I.¹ In Count I Plaintiffs allege that Defendants, by adopting the 1993 Amendment to the Plan, breached the fiduciary duty owed to Plan participants in violation of ERISA § 404, 29 U.S.C. § 1104.² Specifically, Plaintiffs claim that the 1993 Amendment violated the terms of the Plan and ERISA's exclusive benefit rule. In addition, Plaintiffs allege that Defendants' failure to provide timely notice of the 1993 Amendment constituted a breach of fiduciary duty. Plaintiffs seek a declaratory judgment and ask the Court to invalidate the 1993 Amendment.

A. Are Defendants Fiduciaries?

The fiduciary duties imposed by ERISA § 404 apply only to those properly classified as fiduciaries. 29 U.S.C. § 1104; Santana v. Deluxe Corp., 920 F.Supp. 249, 253 (D.Mass. 1996). Defendants argue that neither the Fund nor IPI are "fiduciaries," and that they are therefore entitled to summary judgment on Count I, at least insofar as it applies to the forfeiture of allocation accounts.

ERISA assigns fiduciary status to persons "named [as fiduciaries] in the plan instrument, or who, pursuant to a procedure specified in the plan [are] identified as fiduciar[ies] ...." 29 U.S.C. § 1102(a)(2); see also, 29 U.S.C. § 1105(c)(1) (permitting allocation of fiduciary responsibility pursuant to the plan instrument). The Plan designates the Trustees as "named fiduciaries." Although neither the Fund nor IPI are named fiduciaries, they may still qualify as functional fiduciaries with respect to the Plan. Beddall v. State Street Bank and Trust Co., 137 F.3d 12, 18 (1st Cir.1998). Section 3(21)(A) of ERISA provides:

a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control...