Duncan v. Santaniello

• Citation: 900 F. Supp. 547
• Decision Date: 29 September 1995
• Docket Number: Civ. A. No. 94-30224-MAP.
• Parties: David D. DUNCAN, Sr., Walter J. Patterson, Robert M. Sullivan and Charles V. DeGeorge, as Trustees of the Teamsters Health Services and Insurance Plan of Local 404, Plaintiffs, v. Robert M. SANTANIELLO, Jay A. Posnik and Savino J. Basile, Individually and as They are Partners d/b/a Santaniello, Posnik, Basile and Rideout, and Edward J. Partyka, Defendants and Third-Party Plaintiffs, v. David D. DUNCAN, Sr., Michael J. Catanzaro, Robert M. Sullivan, Charles V. DeGeorge, Individually, Third-Party Defendants.
• Court: U.S. District Court — District of Massachusetts

900 F. Supp. 547

David D. DUNCAN, Sr., Walter J. Patterson, Robert M. Sullivan and Charles V. DeGeorge, as Trustees of the Teamsters Health Services and Insurance Plan of Local 404, Plaintiffs, v. Robert M. SANTANIELLO, Jay A. Posnik and Savino J. Basile, Individually and as They are Partners d/b/a Santaniello, Posnik, Basile and Rideout, and Edward J. Partyka, Defendants and Third-Party Plaintiffs, v. David D. DUNCAN, Sr., Michael J. Catanzaro, Robert M. Sullivan, Charles V. DeGeorge, Individually, Third-Party Defendants.

Civ. A. No. 94-30224-MAP.

United States District Court, D. Massachusetts.

September 29, 1995.

Matthew E. Dwyer, Grady and Dwyer, Boston, MA, for plaintiffs David D. Duncan, Sr., Walter J. Patterson, Robert M. Sullivan, Charles V. DeGeorge, Trustees of Teamsters Health Services and Insurance Plan of Local 404.

Philip J. Callan, Jr., Michael K. Callan, Doherty, Wallace, Pillsbury & Murphy, Springfield, MA, for defendants Robert M. Santaniello, Jay A. Posnik, Savino J. Basile, individually and as partners dba Santaniello, Posnik, Basile and Rideout, Edward J. Partyka.

MEMORANDUM REGARDING PLAINTIFFS' MOTION TO DISMISS THIRD-PARTY COMPLAINT

PONSOR, District Judge.

I. INTRODUCTION

Before the court are the objections of third-party defendants, David D. Duncan, Sr., Michael J. Catanzaro, Robert M. Sullivan, and Charles V. DeGeorge's ("Duncan Defendants") to Magistrate Judge Kenneth P. Neiman's Report and Recommendation Regarding Third-Party Defendants' Motion to Dismiss the Third-Party Complaint (D.Mass. June 2, 1995) (Neiman, U.S.M.J.) ("Report and Recommendation"). In the Report and Recommendation, the Magistrate Judge recommended denying the motion. For the reasons which follow, this court will adopt the Report and Recommendation.

II. FACTUAL AND PROCEDURAL BACKGROUND

The Duncan Defendants specifically contest as an erroneous finding of fact the portion of the Report and Recommendation that states that "the third party complaint ... seeks to recover assets for the benefit of the Plan's beneficiaries." Report and Recommendation at 10. It would appear that this is more a legal conclusion than a finding of fact. In any event, the court will adopt the portions of the Magistrate Judge's factual background that remain uncontested. Any missing pieces of the legal puzzle will be resolved and put into place in the discussion of the Duncan Defendants' objections below.

A. Procedural History

At the commencement of this case on October 4, 1994, plaintiffs, as Trustees of the Teamsters Health Services and Insurance Plan of Local 404 ("Plan"), filed a complaint against the defendants for violations of the Employee Retirement Income Security Act ("ERISA") and for professional negligence.

On November 4, 1994, defendants as third-party plaintiffs brought a third-party complaint for contribution and indemnification against David M. Duncan, Sr., Michael Catanzaro, Robert M. Sullivan, and Charles V. DeGeorge ("Duncan Defendants"), who were trustees of the Plan at the times relevant to the initial claim. In seeking to join the third-party defendants, the defendants as third-party plaintiffs contend that the Duncan Defendants breached their fiduciary duties to the Plan and thus are jointly liable for any damages incurred.¹

B. Factual History

The Magistrate Judge's Report and Recommendation summarized the facts of the case as follows, without objection:

In addressing the Duncan Defendants' motion to dismiss, the Court accepts as true the factual allegations in the Defendants' complaint as third-party plaintiffs. The dispute originally arose out of the January, 1990, sale of the Plan's Family Medical Center in Springfield, Massachusetts. The Family Medical Center provided health care services to eligible Plan participants and their beneficiaries. The Plan's trustees began exploring the possibility of selling the Family Medical Center in 1988 or 1989. After negotiations, Grant-Lee, Inc. ("Grant Lee") agreed to purchase the Family Medical Center and to assume its lease, as well as provide specified services to certain Plan participants. Throughout the series of transactions that led up to the January 20, 1990 sale, the Duncan Defendants were acting in their fiduciary capacities to the Plan.

Defendants, pursuant to their obligations as attorneys to the Plan, advised the Duncan Defendants that ERISA prohibited the proposed sale of the Family Medical Center until the United States Department of Labor provided an exemption and approved the financing arrangements. Despite this advice, the Duncan Defendants instructed Defendants to draft the necessary documents to effectuate the sale. Defendant Posnik drafted the documents, but specifically incorporated the contingencies which he previously explained to the Duncan Defendants. The contingencies were set forth in the Asset Purchase Agreement as follows:

11. CONTINGENCIES: This agreement and the obligations of the parties hereunder are subject to and contingent upon the following, as of the closing ... d. the parties recognize and acknowledge that the transaction contemplated by this Agreement is a prohibited transaction under the Employment Retirement Income Security Act of 1974 (ERISA), and the rights and obligations of the parties hereto are subject to and contingent upon the TRUSTEES obtaining from the Secretary of Labor an appropriate exemption therefrom.

Both Grant-Lee and the Duncan Defendants, as Trustees of the Plan, executed the agreement.

Contrary to the conditions of the Asset Purchase Agreement, however, Grant-Lee and the Duncan Defendants began to perform without the Department of Labor's approval of the transaction. The Department of Labor ultimately refused to provide an exemption for the sale. Grant-Lee then commenced legal action against the Plan, which caused the Plan to suffer substantial expense. This lawsuit ensued.

Report and Recommendation at 3-4.

III. STANDARDS OF REVIEW

A. De Novo Review

A dissatisfied litigant may obtain review of a dispositive pretrial motion issued by a magistrate judge by filing an objection to the report and recommendation in the district court. The district court uses a de novo standard of review, which does not require a new hearing. Rules for United States Magistrates (Local Rule 3(b)); see also Mathews v. Weber, 423 U.S. 261, 96 S.Ct. 549, 46 L.Ed.2d 483 (1976). The court may accept, reject or modify the recommended decision, receive further evidence, or recommit the matter to the magistrate judge with instructions. See Paterson-Leitch v. Massachusetts Municipal Wholesale Electric Co., 840 F.2d 985, 990-991 (1st Cir.1988) (citing Fed.R.Civ.P. 72); see also 28 U.S.C. § 636(b)(B).

B. FED.R.CIV.P. 12(B)(1) and (6)

The appropriate inquiry on a motion to dismiss is whether, based on the allegations of the complaint, the plaintiffs are entitled to offer evidence in support of their claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). Therefore, the court must accept as true all the factual allegations set forth in the complaint and draw all reasonable inferences in favor of the plaintiffs. Bergeson v. Franchi, 783 F.Supp. 713 (D.Mass.1992), citing Correa-Martinez v. Arrillaga-Belendez, 903 F.2d 49, 52 (1st Cir.1990). If under any theory the complaint is "sufficient to state a cause of action in accordance with the law, a motion to dismiss the complaint must be denied." Knight v. Mills, 836 F.2d 659, 664 (1st Cir.1987); Cuddy v. Boston, 765 F.Supp. 775, 776 (D.Mass.1991).

IV. DISCUSSION

The Duncan Defendants generally object to the Report and Recommendation on the grounds that it is premised on erroneous conclusions of law. This contention requires the court to address issues of first impression in this circuit, regarding both the appropriate federal common law to be applied under ERISA, and ERISA's standing provision. Specifically, the court must address whether fiduciaries have standing and the right to pursue contribution and indemnity from other fiduciaries if they are found to be jointly liable for harm to an ERISA plan.

In reaching its conclusion on defendants' objections, this court has relied heavily on the Second Circuit's well reasoned opinion in Chemung Canal Trust Co. v. Sovran Bank/Maryland, 939 F.2d 12 (2d Cir.1991), cert. denied, 505 U.S. 1212, 112 S.Ct. 3014, 120 L.Ed.2d 887 (1992). In Chemung, the Court of Appeals found there was a right to contribution and indemnity under ERISA, based upon principles of traditional trust law. Id.

A. Right of Contribution/Indemnification

ERISA has been described as "a comprehensive and reticulated statute." Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 361, 100 S.Ct. 1723, 1726, 64 L.Ed.2d 354 (1980). Both the third-party plaintiffs and the Duncan Defendants agree that there is no express provision for contribution under ERISA. However, among its enforcement mechanisms the statute does recognize the need for the common law development of equitable remedies:

Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from such breach and to restore to such plan any profits of such fiduciary which have been made through use of any assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the Court shall deem appropriate, including removal of such fiduciary.

29 U.S.C. § 1109(a). (Emphasis added).

Moreover, the Supreme Court has left no doubt that "courts are to develop a `federal common law of rights and obligations under ERISA-regulated plans.'" Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 110, 109 S.Ct. 948, 954, 103 L.Ed.2d 80 (1989) (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S.Ct. 1549, 1557, 95 L.Ed.2d 39 (1987)). Since ERISA "abounds with...