Donovan v. Estate of Fitzsimmons
| Decision Date | 15 November 1985 |
| Docket Number | 84-2863 and 84-2864,Nos. 84-2827,s. 84-2827 |
| Parties | , 3 Fed.R.Serv.3d 599, 6 Employee Benefits Ca 2497 Raymond J. DONOVAN, Secretary of Labor, Plaintiff-Appellant, v. ESTATE OF Frank E. FITZSIMMONS, et al., Defendants-Appellees. David DUTCHAK, et al., Plaintiffs, Raymond J. Donovan, Secretary of Labor, Intervening Plaintiff-Appellant, v. INTERNATIONAL BROTHERHOOD OF TEAMSTERS, et al., Defendants-Appellees. Chester J. SULLIVAN, et al., Plaintiffs, Raymond J. Donovan, Secretary of Labor, Intervening Plaintiff-Appellant, v. ESTATE OF Frank E. FITZSIMMONS, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Steven J. Mandel, U.S. Dept. of Labor, Washington, D.C., for plaintiff-appellant.
Lawrence Walner, Lawrence Walner & Assoc., Chicago, Ill., Robert J. Higgins, Dickstein, Shapiro & Morin, Washington, D.C., John Tucker, Jenner & Block, Chicago, Ill., for defendants-appellees.
Before BAUER, COFFEY, Circuit Judges, and GRAY, Senior District Judge. *
The Secretary of Labor appeals the district court's approval of a comprehensive settlement of actions brought by participants in the Central States Southeast and Southwest Areas Pension Fund (CSPF) alleging that the benefit structure and investment management of the CSPF were illegal and that past investment mismanagement gave rise to a derivative action on behalf of the CSPF against other defendants. We affirm.
The Central States Southeast and Southwest Areas Pension Fund is a multi-employer pension trust created in 1955 under the provisions of Section 302 of the Taft-Hartley Act, 29 U.S.C. Sec. 186. As required by that section, the CSPF has an equal number of trustees appointed by labor organizations and by employer organizations. All trustees serve without compensation, and no compensation of trustees by the CSPF is permitted under the statute. Since January 1975 the CSPF has been subject to the requirements of the Employee Retirement Income Security Act (ERISA). 29 U.S.C. ch. 18.
The Dutchak complaint, filed in late 1976, was instituted by eleven plaintiffs and contained eight counts alleging that forty-five separate defendants violated various federal and state laws. The complaint alleged that the Teamsters conspired with the other defendants to establish pension funds with long and arbitrary benefits provisions. Additionally, a substantial portion of the complaint contained allegations that the defendants breached their fiduciary duties through improprieties with regard to fund investments. The asset management claims spanned the entire history of the CSPF and challenged the conduct of the defendants as imprudent both generally and as to numerous specific loan transactions.
In 1978, the Secretary of Labor filed Donovan against various former trustees of the CSPF, alleging that the acts and omissions of these trustees with regard to CSPF investments were negligent and imprudent and hence in violation of ERISA. While the Secretary's complaint challenged various specific loans approved by the trustees of the CSPF, it did not contain the broad and general allegations of investment improprieties alleged in Dutchak. Moreover, the complaint sought relief only with regard to post-ERISA conduct, unlike Dutchak, which addressed both pre- and post-ERISA investments.
The Sullivan complaint was filed in 1979 on behalf of a class of CSPF participants and alleges that present and former trustees and other fiduciaries of the CSPF breached their fiduciary duties to the CSPF in numerous asset management transactions occurring between the inception of the CSPF in 1955 and the date of the filing of the complaint. The Sullivan complaint also alleged that the benefit rules of the CSPF were arbitrary and capricious and operated to deny retirement benefits to many participants on whose behalf substantial contributions had been made to the CSPF, and that the CSPF, the International Brotherhood of Teamsters, other Teamster-related entities, and the individual defendants defrauded the participants by making false and misleading statements about the benefits provided by the CSPF.
The three cases were consolidated for discovery purposes by order of the district court entered on November 27, 1979. On October 16, 1981, a settlement memorandum of understanding resolving the benefit claims, negotiated only by the private plaintiffs and the CSPF, was presented to the court. The proposed settlement was conditioned upon the resolution of the asset mismanagement claims and dismissal by the court of the Donovan complaint. The former trustees of the CSPF thereafter requested a stay of all substantive discovery in the three cases pending review of the settlement. This request was granted and subsequently extended over the Secretary's objections.
In response to the filing of the proposed settlement, the Secretary moved to intervene as a plaintiff in Sullivan and Dutchak, relying on his statutory right to intervene in private ERISA cases. 19 U.S.C. Sec. 1132(h). The court granted the Secretary leave to intervene for the purpose of participating in the consideration of the settlement, and to object to the settlement. There followed an extended period of negotiation among the Secretary, the CSPF, the participants, and the insurance companies (but not between DOL and the insurance companies), accompanied by frequent pretrial conferences with reports to the court on the progress of the negotiations.
A final revised benefit settlement agreement was filed with the court on July 22, 1982. The court ruled that a settlement class should be certified, that the settlement should be preliminarily approved and notice sent to the class. The CSPF sent notice of the settlement to nearly 500,000 persons whom its records showed to be members of the class, and placed advertisements in major newspapers within the states where the CSPF has had significant numbers of participants; more than 2100 persons responded.
The district court held the final settlement hearing on June 14, 1984. Each of the major participants in the settlement addressed the court. The court rendered an oral opinion, which was later incorporated in and supplemented by the court's Findings of Fact and Conclusions of Law, and in which the court certified the class, approved the settlement, and dismissed the complaint in Donovan with prejudice. The Secretary's appeal to this court followed.
The first basis on which the Secretary challenges the settlement is the dismissal of its complaint in Donovan as an essential element of the overall settlement. The Secretary's argument is essentially that in dismissing the Secretary's complaint "[t]he court relied exclusively on the doctrine of res judicata, yet because the Secretary and private plaintiffs represent different interests, they are not in privity for res judicata purposes." Secretary's br. at 13.
Under res judicata, "a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 414, 66 L.Ed.2d 308 (1980); Beard v. O'Neal, 728 F.2d 894, 896 (7th Cir.1984). Strict identity of the parties is not necessary to achieve privity. Privity applies to successive parties who adequately represent the same legal interests. Southwest Airlines Co. v. Texas Internat'l Airlines, Inc., 546 F.2d 84, 95 (5th Cir.), cert. denied, 434 U.S. 832, 98 S.Ct. 117, 54 L.Ed.2d 93 (1977); Jefferson School of Social Science v. Subversive Activities Control Bd., 331 F.2d 76, 83 (D.C.Cir.1963); see generally TRW, Inc. v. Ellipse Corp., 495 F.2d 314, 317-18 (7th Cir.1974).
The district court found privity between the Secretary and the Sullivan plaintiffs for several reasons:
(1) there is a "congruence of legal interests" between the Secretary and the private plaintiffs, (2) the private plaintiffs have adequately represented the Secretary's interests, and (3) the relationship between the private plaintiffs and the Secretary is "sufficiently close" due to the identity of their interests under ERISA.
Although the Secretary takes exception to each of these findings, these findings and the ultimate finding of privity are questions of fact, and thus will be upheld unless clearly erroneous. Vulcan, Inc. v. Fordees Corp., 658 F.2d 1106, 1109 (6th Cir.1981), cert. denied, 456 U.S. 906, 102 S.Ct. 1752, 72 L.Ed.2d 162 (1982); Astron Industrial Associates, Inc. v. Chrysler Motors Corp., 405 F.2d 958, 960-61 (5th Cir.1968).
We have little difficulty in this case upholding the district court's privity findings. There can be no dispute that the Donovan claims are the "same claims" at issue in Dutchak and Sullivan. The language of the Donovan complaint parallels the language of Dutchak and Sullivan. The complaints allege the same wrongful investments, seek the same relief, and are predicated upon the same provisions of ERISA. Indeed, in paragraph 3 of his "Motion for Leave to Intervene" in Sullivan, the Secretary acknowledges that the Sullivan language is "virtually identical to the claims set forth in Donovan." Similarly, on page 9 of the "Memorandum of the Secretary of Labor in Opposition to the Motion of Certain Defendants for Reconsideration of this Court's Order of March 3, 1980," he describes the Donovan claims as "substantially identical" to those in Sullivan. Therefore, the Donovan complaint, being predicated upon the same facts and statutory provisions as the complaints in Dutchak and Sullivan, is based upon the "same claims" as Dutchak and Sullivan for purposes of the doctrine of res judicata.
Moreover, there can be little doubt that the Secretary's claims were adequately represented in Sullivan. The Secretary participated actively in Dutchak and Sullivan, initially because Donovan was consolidated with Dutchak and Sullivan for purposes of...
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