Guidry v. Sheet Metal Workers Nat. Pension Fund

• Decision Date: 24 August 1988
• Docket Number: I,No. 9,No. 86-2323,9,86-2323
• Citation: 856 F.2d 1457
• Parties: , 9 Employee Benefits Ca 2553 Curtis GUIDRY, Plaintiff-Appellant, v. SHEET METAL WORKERS NATIONAL PENSION FUND, and Edward J. Carlough, Robert T. Stringer, C.T. Roff, and Cavet Snyder, Trustees; Sheet Metal Workers' Local Unions and Councils Pension Plan and Edward J. Carlough, Cecil D. Clay, George J. Cuddihy, Urie E. Williams, Jr., and Richard J. Scott, Trustees, Defendants-Appellees, and Sheet Metal Workers International Association, Localntervenor-Appellee, and Sheet Metal Workers LocalPension Fund, Rule 19 Party-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1457

856 F.2d 1457

57 USLW 2140, 9 Employee Benefits Ca 2553

Curtis GUIDRY, Plaintiff-Appellant, v. SHEET METAL WORKERS NATIONAL PENSION FUND, and Edward J Carlough, Robert T. Stringer, C.T. Roff, and Cavet Snyder Trustees; Sheet Metal Workers' Local Unions and Councils Pension Plan and Edward J. Carlough, Cecil D. Clay, George J. Cuddihy, Urie E. Williams, Jr., and Richard J. Scott Trustees, Defendants-Appellees and Sheet Metal Workers International Association, Local No. 9, Intervenor-Appellee, and Sheet Metal Workers Local No. 9 Pension Fund, Rule 19 Party-Appellee.

No. 86-2323.

United States Court of Appeals, Tenth Circuit.

Aug. 24, 1988.

Eldon Silverman, of Silverman and Gelman, P.C., Denver, Colo. (Michael P. Serruto with him on the briefs of Elrod, Katz, Preeo & Look, P.C., Denver, Colo.), for plaintiff-appellant.

Joseph M. Goldhammer of Brauer & Buescher, P.C. (Raymond J. Sweeney, Washington, D.C., with him on the brief), Denver, Colo., for defendants-appellees.

Before HOLLOWAY, Chief Judge, MOORE, Circuit Judge and RUSSELL, ^* District Judge.

JOHN P. MOORE, Circuit Judge.

This is an appeal from the district court's order placing a constructive trust upon plaintiff's pension benefits, 641 F.Supp. 360 (1986). The trust was imposed to allow recovery of a judgment obtained by the Sheet Metal Workers' International Association, Local No. 9 (the Union), for money embezzled by Mr. Guidry from the pension fund. Plaintiff argues that the anti-alienation provision of ERISA (the Act) should have precluded the district court from placing his pension benefits in a constructive trust. Plaintiff also claims that imposition of a constructive trust must be limited to funds linked to his embezzlement and traceable into the pension funds, or, alternatively, that seventy-five percent of pension benefits must be exempted from the constructive trust because of garnishment restrictions in the Consumer Credit Protection Act. We are not persuaded by these arguments and affirm the district court's decision.

From 1964 until 1981, Mr. Guidry served as business manager and chief executive officer of the Union. During approximately the last five years of this period, Mr. Guidry was also a trustee of the Union's pension fund. When he resigned as business manager, the Union commissioned an audit which concluded that nearly $1,000,000 had been stolen from it. In March 1982, Mr. Guidry pled guilty to embezzling $377,000 from the Union by depositing into his own account checks made payable to the Union from several trust funds. The Union and Mr. Guidry stipulated to the entry of a $275,000 judgment in January 1986 on the Union's first five claims of relief. That judgment has been certified as final.

Mr. Guidry brought this suit after being denied early retirement pension benefits by the Sheet Metal Workers' National Pension Fund and the Sheet Metal Workers' Local Unions and Councils Pension Plan. ¹ The defendant pension funds claimed they owed no benefits because plaintiff's misconduct forfeited his right to payment. Alternatively, the funds and the Union argued that plaintiff's pension benefits should be placed in a constructive trust until satisfaction of the stipulated judgment. The district court granted Mr. Guidry his pension funds but placed them in a constructive trust to be paid to the Union. In its order denying plaintiff's motion for a new trial, the court further held that the constructive trust was not limited to pension benefits actually traced to the embezzlement.

I.

Plaintiff first contends that the district court's decision to impose a constructive trust on his interest in the pension plan is contrary to the anti-alienation provision of ERISA. This provision mandates that "[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated." 29 U.S.C. Sec. 1056(d)(1). The only express exceptions to this provision allow assignment for a "qualified domestic relations order" and "a voluntary and revocable assignment of not to exceed 10 percent of any benefit payment...." 29 U.S.C. Sec. 1056(d)(2),(3). Plaintiff further points out two circuit courts have held that the meaning of Sec. 1056(d)(1) is clear and have therefore refused to find an exception for criminal conduct. See Ellis Nat'l Bank of Jacksonville v. Irving Trust, 786 F.2d 466 (2d Cir.1986); United Metal Prods. v. National Bank of Detroit, 811 F.2d 297 (6th Cir.1987), cert. denied, --- U.S.----, 108 S.Ct. 1494, 99 L.Ed.2d 879 (1988).

However, the anti-alienation provision has not been regarded as immutable by the courts. In Stone v. Stone, 632 F.2d 740 (9th Cir.1980), cert. denied, 453 U.S. 922, 101 S.Ct. 3158, 69 L.Ed.2d 1004 (1981), for example, the court required pension plan payments to be made directly to an ex-spouse to pay her community property share. A number of courts have also garnished pension plan benefits to satisfy alimony and child support obligations. ² E.g., American Tel. & Tel. v. Merry, 592 F.2d 118 (2d Cir.1979); Senco of Florida v. Clark, 473 F.Supp. 902 (M.D.Fla.1979). In all of these decisions, courts have used their inherent equitable authority to find implied exceptions to ERISA's anti-alienation provision when the beneficiary sought to avoid a legal duty.

Building upon these earlier decisions, the D.C. Circuit and the Eleventh Circuit have decided that a court may garnish a beneficial interest in a plan to satisfy a judgment based on a breach of ERISA. In Crawford v. La Boucherie Bernard, Ltd., 815 F.2d 117 (D.C.Cir.), cert. denied, --- U.S. ----, 108 S.Ct. 328, 98 L.Ed.2d 355 (1987), the court offset the interest of a participant and trustee in a profit sharing plan against a judgment based on his embezzlement of trust funds. The court emphasized the broad goal of ERISA to "protect ... the interests of participants in employee benefit plans ... by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts." 29 U.S.C. Sec. 1001(b). The court also noted ERISA provides that a person who breaches a fiduciary duty "shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, ... and shall be subject to such other equitable or remedial relief as the court may deem appropriate...." 29 U.S.C. Sec. 1109(a). Pursuant to these statutes, the court held that it had broad authority to fashion remedies, including offsetting defendant's plan benefits against a judgment debt, to redress breaches by trustees and to protect the interests of participants and beneficiaries. 815 F.2d at 119.

The court in St. Paul Fire and Marine Ins. v. Cox, 752 F.2d 550 (11th Cir.1985), also held that a trustee-participant's interest in a pension fund could be garnished to satisfy a judgment debt resulting from embezzlement of funds. The court found that ERISA's purpose of establishing standards to assure the equitable character of pension funds included protecting employees against mismanagement of these funds. "The insulation of an employee from liability for the consequences of his criminal misconduct does not protect the financial interests of other employees or promote security in the workplace," the court concluded. 752 F.2d at 552. "On the contrary, in such cases garnishment of the employee's fund interest best serves the financial stability of the employer and, indirectly, the employer's pension plan." Id. See also Calhoun v. FDIC, 653 F.Supp. 1288, 1293 (N.D.Tex.1987) (following St. Paul Fire in holding the FDIC's withholding of pension plan benefits to an insolvent bank did not violate ERISA's anti-alienation provision).

We agree with the D.C. and Eleventh Circuits and decline to follow the holdings of Ellis Nat'l Bank and United Metal Prods. ³ A major purpose of ERISA is to safeguard "the continued well-being and security of millions of employees and their dependents ... [by establishing] minimum standards ... assuring the equitable character of [pension fund] plans and their financial soundness." 29 U.S.C. Sec. 1001(a). We find no indication in the Act that the unscrupulous fiduciary is to be protected from the natural legal consequences of his or her misdeeds. Indeed, as the D.C. Circuit noted, "A contrary interpretation would permit trustee wrongdoers to benefit from their misdeeds at the expense of those whom ERISA was designed to protect." Crawford, 815 F.2d at 121. When Mr. Guidry left office after embezzling at least $370,000, the Union had only $150,000 in cash assets remaining, and the financial security of workers who relied upon the Union's pension plan was severely undermined. Given the express purpose of ERISA to protect the financial security of employees, we find it extremely unlikely that Congress intended to ignore equitable principles by protecting individuals such as the plaintiff from the consequences of their misconduct. ⁴

Furthermore, the district court's use of a constructive trust to redress breaches of ERISA was proper. The Supreme Court has consistently emphasized the inherent equitable jurisdiction of federal district courts. ⁵ See Cummings by Techmeier v. Briggs & Stratton Retirement Plan, 797 F.2d 383, 390 (7th Cir.), cert. denied, 479 U.S. 1008, 107 S.Ct. 648, 93 L.Ed.2d 703 (1986). For example, in Mitchell v. Robert De Mario Jewelry, 361 U.S. 288, 291, 80 S.Ct. 332, 335, 4 L.Ed.2d 323 (1960), the Court stated that "[u]nless otherwise provided by statute, all the inherent equitable powers of the District Court are available for the proper and complete exercise of that jurisdiction." Any statutory restriction of a court's jurisdiction in equity must be clearly stated or be accomplished by "a necessary and inescapable inference." Porter v. Warner Holding Co., 328 U.S. 395, 398, 66 S.Ct. 1086, 1089, 90 L.Ed. 1332. "The great principles of equity, serving complete justice, should...