Donovan v. Schmoutey
| Decision Date | 06 August 1984 |
| Docket Number | No. CV-LV 77-47 RDF.,CV-LV 77-47 RDF. |
| Citation | 592 F. Supp. 1361 |
| Parties | Raymond J. DONOVAN, Successor to Ray Marshall, Secretary of Labor, Plaintiff, and Southern Nevada Culinary and Bartenders Pension Trust, Involuntary Plaintiff, v. Ben SCHMOUTEY, et al., Defendants. |
| Court | U.S. District Court — District of Nevada |
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Lamond Mills, U.S. Atty., Las Vegas, Nev., John Hardin Young, Joseph R. Reyna, Paula J. Page, David L. Peña, Willie M. Alexander, Daly D.E. Temchine, Peter B. Dolan, Linda S. Leonard, Nancy S. Hyde, Patrick Hyde, U.S. Department of Labor, Washington, D.C., for plaintiff Donovan.
John J. Reynolds, Chicago, Ill., Kevin C. Efroymson, Las Vegas, Nev., Seyfarth, Shaw, Fairweather & Geraldson, Mitchel D. Whitehead, Bruce R. Bailey, Mary E. McInerny, Los Angeles, Cal., Iverson, Yoakum, Papiano & Hatch, John A. Slezak, Donald M. Robbins, Neil Papiano, F.B. Yoakum, Jr., Deborah M. Nesset, Los Angeles, Cal., for involuntary plaintiff and cross defendant Southern Nevada Culinary and Bartenders Trust.
Thomas L. Pursel, Las Vegas, Nev., for defendant Ben Schmoutey.
William Singleton, Rene C. Arceneaux, Mark C. Scott, Jr., Beckley, Singleton, DeLanoy & Jemison, Las Vegas, Nev., for defendants and third-party plaintiffs Richard P. Crane, Jr., Bernard W. Menke & Harry R. Stang.
Lewis, D'Amato, Brisbois & Bisgaard, Christopher P. Bisgaard, Robert F. Lewis, Roy M. Brisbois, Alan M. Greenberg, Charles K. Wake, Los Angeles, Cal., and Cromer, Barker, Michaelson, Gillock & Rawlings, Las Vegas, Nev., for defendant/cross claimant and third party plaintiff Harry Rugg.
Houston, Moran & Kennedy, Las Vegas, Nev., and Lewis, D'Amato, Brisbois & Bisgaard, Associated 8/13/79, Los Angeles, Cal., for defendant/cross claimant and third party plaintiff Herbert Tobman.
John O'Reilly, Gloria Sanchez, Peter J. Stutsman, Las Vegas, Nev., for defendant Estate of Al Bramlet.
Cordell Siegel, Andrew F. Puzder, James L. Zemelman, Anthony A. Zmaila, John L. Boeger, St. Louis, Mo., Bilbray, Carelli & Miller, Las Vegas, Nev., William E. Crockett, Cordell Siegel, St. Louis, Mo., E. Michael Murphy, Clayton, Mo., Pierre E. Mailloux, Washington, D.C., Bernard J. Mellman, St. Louis, Mo., Anthony A. Zmaila, St. Louis, Mo., Andrew F. Puzder, Stolar, Heitzmann, Eder, Seigel & Harris, St. Louis, Mo., E. Michael Murphy, Clayton, Mo., for defendant and defendants in intervention Morris Shenker; I.J.K. Nevada, Inc., Murrieta Hot Springs & S & F Corp.
Lee A. Warsaw, Los Angeles, Cal., for defendant and defendant in intervention Sierra Charter Corp.
A. William Maupin, Las Vegas, Nev., for defendant and third party defendant Pacific Intern. Brokers, Ltd.
James Pico, Las Vegas, Nev., for third party defendants Underwriters at Lloyd's, London & Professional Indem. Agency, Inc. (also referred to as Professional Indemnity, Inc.).
Bancroft, Avery & McAlister, Michele D. Robertson, Janet F. Stansby, San Francisco, Cal., Leonard I. Gang, Las Vegas, Nev., for third party plaintiff and third party defendant Barbanell Associates.
M. Loeb, Fred J. Marcus, Linda C.J. Miller, Brian R. Strange, Suzanne Elkins, Mark F. Marnell, David Herriford, Los Angeles, Cal., for third party defendants Roland C. Davis, Davis, Cowell & Bowe, I.R. Ashleman, II, and Ashleman & Sabbath.
Herbert L. Roth, Los Angeles, Cal., Mitchell, Silberberg & Knupp, Jean P. Nogues, Charles F. Eick, Richard S. Hessenius, Daniel A. Weber, Los Angeles, Cal., Richard Mainland, Los Angeles, Cal., Earl Monsey, Rogers, Monsey, Woodbury, Brown & Berggreen, Las Vegas, Nev., for Substituted Investment Manager and Plaintiff/intervenor Thomas L. Karsten Assoc.
Andrew S. Brignone, Lionel Sawyer & Collins, Las Vegas, Nev., for third party defendants Laventhol and Horwath.
David R. Grundy, Hibbs, Roberts & Lemons, Reno, Nev., Reuben & Proctor, John A. Krivicich, Chicago, Ill., for third party defendant Lake Shore Nat. Bank.
Goodman, Oshins, Brown & Singer, Kirby R. Wells, Las Vegas, Nev., for deponent Merlin Jones, CPA.
1. On March 30, 1977, the Secretary of Labor (Secretary) filed a complaint in the United States District Court, District of Nevada, naming the Southern Nevada Culinary and Bartenders Pension Trust (Pension Trust) as an involuntary plaintiff, certain of the Pension Trust's trustees as defendants, and Morris A. Shenker (Shenker) and certain companies owned or controlled by him as defendants. On December 14, 1982, the Secretary amended his complaint.
The original and amended complaints of the Secretary arise under the Employee Retirement Income Security Act of 1974 (ERISA), Pub.L. No. 93-406, 88 Stat. 829, generally codified as amended in 29 U.S.C. secs. 1001-1381 (1976 & Supp. V 1981) and were brought by the Secretary to enjoin acts and practices of the defendants which violate title I of ERISA and to obtain other equitable relief to redress violations and enforce the provisions of that title. The Secretary specifically alleged the following claims:
a. The defendant trustees breached their fiduciary obligations with respect to the Pension Trust and its participants and beneficiaries by engaging in imprudent acts by making loans to certain Shenker defendants in violation of ERISA, 29 U.S.C. sec. 1104(a)(1)(B) (1976).
b. The defendant trustees breached their fiduciary obligations with respect to the Pension Trust and its participants and beneficiaries by failing to diversify the investments of the Pension Trust so as to minimize the risk of large losses in violation of ERISA, 29 U.S.C. sec. 1104(a)(1)(C) (1976).
c. The defendant trustees caused the Pension Trust to engage in transactions which they knew or should have known constituted a direct or indirect lending of money or extension of credit to parties in interest in violation of ERISA, 29 U.S.C. sec. 1106(a)(1)(B) (1976), by causing the Pension Trust to lend money to defendant Sierra Charter Corporation (Sierra) for the benefit of defendants I.J.K. Nevada, Inc. (I.J.K.), Murrieta Hot Springs (Murrieta), and Shenker and by extending credit to Murrieta by classifying and treating delinquent interest owed to the Pension Trust as principal on the loans made to Murrieta.
d. Defendants Shenker, I.J.K., Murrieta, Sierra, and S & F Corporation (S & F) knowingly participated in these breaches of fiduciary obligations of the defendant trustees. The Secretary requested that the court order these defendants to make restitution to the Pension Trust of all monies unlawfully received by these defendants or lost by the Pension Trust as a result of their knowing participation and also as a result of their violations of ERISA.
Prior to the commencement of the trial in this case, the Secretary, the involuntary plaintiff, and the then trustee defendants, except for Ben Schmoutey, finally settled all claims between them. The then trustee defendants and the third party defendants, I.R. Ashleman II, Roland C. Davis, Ashleman & Sabbath, and Davis, Cowell & Bowe, likewise settled the claims between them without admitting liability for those claims. The Secretary, the involuntary plaintiff, and these third party defendants also entered into agreements, which were effectuated and memorialized in consent decrees and stipulations, that expressly provided that they shall not constitute an adjudication on the merits of any of the claims thereby finally resolved. The then trustee defendants did not participate as parties in the trial.
The evidence at trial discloses that in September of 1976 three new trustees, Richard P. Crane Jr., Harry R. Stang, and Bernard W. Menke, were appointed to the Pension Trust board of trustees. The court notes that these trustees recognized the perilous circumstances of the Pension Trust and took action, including giving of notification of said loan transactions to the Department of Labor, with the object of terminating the Pension Trust relationship with the Shenker defendants.
After investigating the actions of Crane, Stang, and Menke as trustees, the Secretary and the involuntary plaintiff entered into an agreement, which dismisses with prejudice the claims previously asserted against them in this action.
In addition to bringing the loans referred to herein to the attention of the Department of Labor, Crane, Stang, and Menke sought to investigate the legality of and to remedy the effects of the loans. Accordingly, these findings of fact and conclusions of law shall not be construed as reflecting in any manner on the conduct of Richard P. Crane Jr, Harry R. Stang, and Bernard W. Menke as fiduciaries.
At the commencement of trial, S & F Corporation and Palm Development were party defendants and counterclaimants against the Pension Trust. All claims by the Secretary, the involuntary plaintiff, S & F and Palm were finally settled prior to the conclusion of trial. No adjudication of such claims and the defenses thereto is made by the court.
The trial of the Secretary's claims against Morris A. Shenker, I.J.K. Nevada, Inc., Sierra Charter Corp., and Murrieta Hot Springs, with respect to which the following findings of fact and conclusions of law are made, do not involve an adjudication of any of the settled claims and no such adjudication has been made by the court. The following findings and conclusions are not an adjudication on the merits of the settled claims or of the defenses thereto as to the settling parties only, but are of course an adjudication on the merits as to Shenker, Sierra, and I.J.K.
2. The Secretary is a governmental officer authorized by statute to sue on behalf...
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