Donovan v. Shaw
| Decision Date | 21 January 1982 |
| Docket Number | 81-1264,Nos. 81-1206,s. 81-1206 |
| Citation | 668 F.2d 985 |
| Parties | 2 Employee Benefits Ca 2369 Raymond J. DONOVAN, Secretary of the United States Department of Labor (formerly Ray Marshall), Appellant, v. John A. SHAW, Trustee, Savings and Profit-Sharing Pension Fund of the Reliable Life Insurance Company Employees, Appellee. Raymond J. DONOVAN, Secretary of the United States Department of Labor, Appellee, v. John A. SHAW, Trustee, Savings and Profit-Sharing Pension Fund of the Reliable Life Insurance Company Employees, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
T. Timothy Ryan, Jr., Sol. of Labor, Monica Gallagher, Associate Sol., Norman P. Goldberg, Counsel for Litigation, Jeffrey F. Krenzel, Edward A. Scallet, Attys., Plan Benefits Security Division, U. S. Dept. of Labor, Washington, D. C., for appellant, cross-appellee Raymond J. Donovan.
Frank N. Gundlach, Robert L. Jackson, Thomas B. Weaver, Armstrong, Teasdale, Kramer & Vaughan, St. Louis, Mo., for appellee, cross-appellant John A. Shaw.
Before HENLEY and ARNOLD, Circuit Judges, and NICHOL, * Senior District Judge.
In these consolidated appeals, the Secretary of Labor appeals the order of the district court, 507 F.Supp. 409, granting limited enforcement of a subpoena duces tecum issued by the Secretary to appellee/cross-appellant John A. Shaw, the trustee of the Savings and Profit-Sharing Pension Fund of the Reliable Life Insurance Company Employees (the Fund), to compel him to produce Fund records in connection with an investigation into the Fund's compliance with the fiduciary responsibility provisions of Title I of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1101-1114. The trustee, in a cross-appeal, contends that the district court erred in not quashing the subpoena. On cross-appeal we affirm. On appeal we vacate the limited order of enforcement and remand for further proceedings.
The Fund, which has been in existence since 1951, originally operated as a profit-sharing plan to provide retirement benefits to Reliable Life employees. It was "frozen" on January 1, 1967 when Reliable adopted a retirement pension plan. At that time each participating employee had the option to withdraw his share or leave it in the Fund until he terminated his employment with Reliable. Since the Fund was frozen, neither employer nor employee contributions have been made, and new employees have not participated.
The Fund has been tax exempt since its creation. When Congress enacted ERISA in 1974, the trustee for the Fund became concerned that amendments might be required to comply with the new legislation. After some discussion with the Internal Revenue Service (IRS), one of the agencies charged with administering and enforcing ERISA, the trustee independently concluded that the frozen trust was not required to comply with ERISA. He then requested a determination letter from the IRS stating that the Fund continued to be tax exempt. The IRS issued a letter confirming the Fund's tax exempt status on September 29, 1977. 1
In May, 1980 the Department of Labor (DOL), the other agency charged with ERISA's administration and enforcement, issued the subpoena in question pursuant to its authority under ERISA § 504, 29 U.S.C. § 1134. The subpoena ordered the trustee to produce "(f)or the period October 1, 1974, to the date of return hereunder, all books, records, and documents pertaining to the (Fund)" and included a list of specific records sought. 2
When the trustee refused to produce the materials requested, the Secretary brought an action in the district court to enforce the subpoena. At a show cause hearing held before a United States Magistrate, the trustee contended, inter alia, (1) that the Fund was not covered by Title I of ERISA and was therefore not subject to the Secretary's subpoena power under the statute and (2) that the favorable 1977 IRS determination letter demonstrated that the IRS had concluded that the Fund was not subject to ERISA, 3 and since DOL had bypassed the opportunity granted by ERISA § 3001, 29 U.S.C. § 1201, to participate in the determination letter process, it was now bound by the IRS's determination.
Addressing the trustee's first contention, the Magistrate noted that in a subpoena enforcement action, the court's inquiry is limited to whether the subpoena seeks materials that are reasonably relevant to a lawfully authorized purpose. He concluded that the challenge to DOL's jurisdiction at that stage of the proceedings was premature.
In considering the trustee's second contention, the Magistrate initially reviewed the relationship between DOL and the IRS under ERISA. 4 He then stated:
To assist employers in the development of pension plans, the IRS issues determination letters indicating whether proposed plans or plan amendments qualify for the special tax treatment granted by the tax provisions of ERISA. The Department of Labor also is granted a significant degree of participation in the determination letter procedure....
In addition to these participation rights, section 3001(d) (29 U.S.C. § 1201(d) ) of ERISA provides in pertinent part:
If the Secretary of the Treasury ... issues a determination letter to the applicant, the Secretary shall notify the Secretary of Labor of his determination and furnish such information and material relating to the application and determination held by the Secretary of the Treasury as the Secretary of Labor may request for the proper administration of subchapter I (regulatory provisions) of this chapter. The Secretary of Labor shall accept the determination of the Secretary of the Treasury as prima facie evidence of initial compliance by the plan with the standards of parts 2 (participation and vesting), 3 (funding), and 4 (fiduciary responsibility) of subtitle B of subchapter I of this chapter.
Marshall v. Shaw, No. 80 Misc. 104, slip op. at 5-6 (E.D.Mo., Nov. 4, 1980) (brackets in original). 5
The Magistrate concluded that although the principles of res judicata and collateral estoppel do not ordinarily bar an administrative investigation, in the context of ERISA, there was a specific provision requiring the Secretary of Labor to accept the IRS's favorable determination letter as prima facie evidence of initial compliance with the provisions enumerated above. Thus, the Magistrate determined that in a subpoena enforcement proceeding the Secretary of Labor must "make some showing why the statutory prima facie effect of the determination of compliance by an agency with equal expertise should not limit his investigation into compliance with the specified provisions." Id. at 8. Because he found that the Secretary failed to make any showing to rebut the prima facie evidence of compliance, the Magistrate recommended that "the subpoena be enforced with the limitation that enforcement be denied as to investigation into violations of parts 2 (participation and vesting), 3 (funding), and 4 (fiduciary responsibility) of subtitle B of ERISA occurring on or prior to September 29, 1977." Id. at 9.
The district court adopted this recommendation. Donovan v. Shaw, 507 F.Supp. 409 (E.D.Mo.1980).
We initially review the district court's implicit rejection of the trustee's first contention, to which the trustee, as cross-appellant, takes exception. Asserting that a challenge to DOL's jurisdiction in the subpoena enforcement proceeding was proper and thus should have been allowed, the trustee argues on appeal that the district court should have quashed the subpoena because the IRS's advance determination that the Fund was tax qualified implicitly established that it was not subject to ERISA's provisions. The trustee also contends that DOL has no jurisdiction over the Fund since it is not an "employee pension benefit plan" or "pension plan" within the meaning of those terms in section 3 of ERISA, 29 U.S.C. § 1002(2).
It is well-settled that a subpoena enforcement proceeding is not the proper forum in which to litigate the question of coverage under a particular federal statute. E.g., Endicott Johnson Corp. v. Perkins, 317 U.S. 501, 508-09, 63 S.Ct. 339, 342-43, 87 L.Ed. 424 (1943); EEOC v. Quick Shop Markets, Inc., 526 F.2d 802, 803 (8th Cir. 1975). This question, reserved for initial determination by the administrative agency seeking judicial enforcement of its subpoena, e.g., Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 214, 66 S.Ct. 494, 508, 90 L.Ed. 614 (1946); 526 F.2d at 803, cannot be resolved before the agency has had an opportunity to examine the relevant records. 317 U.S. at 508-09, 63 S.Ct. at 342-43. Thus, in a subpoena enforcement action, the agency cannot be required to demonstrate that the very matter or entity it seeks to investigate under its statutory investigatory powers is covered by the enabling statute since the "(a)uthority to investigate the existence of violations ... include(s) the authority to investigate coverage." 6 It follows that the district court properly refused to allow the trustee to assert a defense of lack of coverage in the subpoena enforcement proceeding. The material sought by the subpoena was not plainly irrelevant to lawful purposes of the DOL and it was the duty of the district court to order its production.
Just as an administrative agency is not required to establish coverage under a particular federal law when it seeks judicial enforcement of its subpoena, the issuing agency generally need not make any factual showing that a law has been violated as a condition precedent to enforcement. United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254-55, 13 L.Ed.2d 112 (1964); Oklahoma Press Publishing Co. v. Walling, 327 U.S. at 208, 209, 66 S.Ct. at 505; EEOC v. Chrysler Corp., 567 F.2d 754, 755 (8th Cir. 1977); FTC v. Texaco, Inc., 555 F.2d 862, 874, 880 (D.C.Cir. en banc), cert. denied, 431 U.S. 974, 97 S.Ct. 2939, 53 L.Ed.2d 1072 (1977). The showing of...
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