Iron Workers Local No. 272 v. Bowen

Decision Date25 August 1980
Docket NumberNo. 78-1789,78-1789
Citation624 F.2d 1255
Parties105 L.R.R.M. (BNA) 2486, 89 Lab.Cas. P 12,301 IRON WORKERS LOCAL # 272, William J. Phillips, Howard Jones, and Merle T. Ledbetter, Individually and as Trustees of Iron Workers Local # 272, Health and Welfare Fund, Pension Fund, and Annuity Fund, Plaintiffs-Appellants Cross-Appellees, v. Eugene BOWEN, Monroe Phagan and Leo Beck, Defendants-Appellees, Eugene Bowen, Defendant-Appellee Cross-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Kurzban & Kurzban, Marvin Kurzban, Ira Kurzban, Miami, Fla., for plaintiffs-appellants cross-appellees.

Aronovitz & Weksler, Bernard B. Weksler, Miami, Fla., for Eugene Bowen.

Wolf & Schoninger, Leonard H. Wolf, Miami, Fla., for Monroe Phagan & Leo Beck.

Appeals from the United States District Court for the Southern District of Florida.

Before JONES, GEE and REAVLEY, Circuit Judges.

GEE, Circuit Judge:

This case arose from a dispute between union and management trustees of the Iron Workers Local No. 272 Annuity Fund, which is one of three Local 272 fringe benefit funds jointly administered by the same union and management trustees pursuant to section 302(c)(5) of the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 186(c)(5). The seeds of the present controversy were sown in January 1975 when plaintiffs William Phillips and Merle Ledbetter and the predecessor of plaintiff Howard Jones became the three union trustees of the funds. 1 At that time, their management counterparts were Martin Bessell, Charles Baker, and defendant Eugene Bowen. By mid-1976, however, Bessell and Baker had been replaced by defendants Monroe Phagan and Leo Beck. Both Phagan and Beck were members of the Steel and Ornamental Erectors Association of South Florida ("SOEA"), which served as the collective bargaining representative of management. The president of SOEA, and the person who appointed Phagan and Beck, was Eugene Bowen.

Upon assuming their tenure as union trustees of the annuity fund, plaintiffs Phillips and Ledbetter and the predecessor of plaintiff Jones (hereinafter "the union trustees") began investigating large losses that the fund had sustained in recent years. They eventually concluded that the losses were at least in part the result of improprieties by the "former trustees" of the fund, i. e., the three union trustees whom they had succeeded and management trustees Bessell, Baker, and Bowen; that these persons were individually liable for the fund's losses; and that suit should be brought against them and other culpable parties to recover the losses.

At a meeting of the board of trustees of the fund on or about October 28, 1976, the union trustees formally moved that such a suit be filed. The management trustees, however, apparently including Bowen, voted to block the suit or at least to table the motion. At the next meeting of the board on November 22, 1976, consensus obtained that the vote of the previous meeting deadlocked the motion, and the trustees proceeded to select an arbitrator and to submit the issue to arbitration pursuant to the Agreement and Declaration of Trust governing the fund. The cost of the arbitration exceeded $35,000 and plaintiffs contend that defendants were advised that the cost of arbitrating whether to file the suit or not would probably exceed the cost of the suit itself. Plaintiffs also allege that defendants Phagan and Beck made no independent investigation regarding the merits of the suit before deciding to block it and even refused to look at evidence offered to them by labor-appointed co-counsel for the fund, Marvin Kurzban. Phagan and Beck, however, maintain that they asked Kurzban to present the evidence to them in an open meeting (i. e., in Bowen's presence) but that he insisted on their coming to his office to see it, which they refused to do.

After extensive proceedings, the arbitrator, Jason Berkman, concluded that the board should indeed file suit against the former trustees and another individual with whom those trustees had dealt, and in his decision delivered on August 27, 1977, he directed the board to bring such an action. At a board meeting convened on September 2, 1977, the union trustees moved that a suit be filed against the persons designated by the arbitrator for "fraud, conspiracy, negligence, nonfeasance, malfeasance, misfeasance, breach of fiduciary duty and/or malpractice." The management trustees, however, refused to approve such a suit, in part, they assert, because they did not think charges of fraud or conspiracy were authorized by the arbitrator's decision. Thereupon co-counsel Kurzban, over the objection of co-counsel representing the management trustees, wrote to the arbitrator requesting clarification of his decision. The arbitrator responded that his opinion did "not limit the type of action to be filed by the present Board of Trustees" and that the proper scope of the suit should be left to the trial court. The management trustees still refused to permit a suit against the former trustees that alleged any willful misconduct, even though, according to plaintiffs they were advised that inclusion of such a charge would not materially affect the cost of the suit.

As a result, the union trustees and Local No. 272 itself commenced the present action against the management trustees, requesting (1) enforcement of the arbitrator's decision to file suit against the former trustees, (2) removal of Bowen, Phagan, and Beck as trustees of the three fringe benefit funds because of various breaches of fiduciary duties, (3) assessment of compensatory and punitive damages against the three management trustees for the breaches of fiduciary duties that precipitated the costly arbitration proceedings, and (4) recovery of attorneys' fees and costs for the present litigation.

The district court found, first, that the "arbitrator's decision was not restricted in the type or form of suit to be brought (including allegations amounting to 'willful misconduct')" but rather left the proper scope of the suit to be determined by the judge who tried the case. On the basis of this finding, the court ordered the trustees to file suit against the former trustees within 30 days. 2 The court also removed Bowen as a trustee of the three fringe benefit funds "until all proceedings relating to said suit are completed," but the court made clear that it did so only "to avoid the appearance of impropriety and the foreseeably and unforeseeably deleterious harm which may flow therefrom" and not because of any misconduct on Bowen's part. The court declined to remove Phagan and Beck, however, because it did not find that they had "breached their fiduciary duties in deadlocking the board and in refusing to include 'willful misconduct' in the proposed suit." The court also denied damages for the cost of the arbitration on the ground that the management trustees had not "acted in bad faith in deadlocking the board." Finally, the court summarily denied plaintiffs' claim for attorneys' fees and costs.

Plaintiffs have appealed both the court's finding that defendants are not liable for the cost of arbitration and its refusal to award attorneys' fees. Defendant Bowen has filed a cross appeal challenging the jurisdiction of the district court, his removal as a trustee of the fringe benefit funds, and the enforcement of the arbitrator's decision.

Although we do not necessarily disagree with any of the actions of the district court recounted above, we must nevertheless remand the case to it because of our inability to discern from the court's opinion the factual or legal basis upon which it predicated some of those actions.

I. Jurisdiction

The district court found jurisdiction under section 302(e) of the LMRA, 29 U.S.C. § 186(e), and sections 404 and 406(b)(2) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1104, 1106(b)(2). Cross-appellant Bowen, however, challenges both assertions of jurisdiction.

Insofar as Bowen objects to jurisdiction under section 302(e) to remove trustees of a jointly administered trust fund or to assess damages against them for breaches of fiduciary duties, his objection is well taken. Section 302(e) confers jurisdiction on district courts "to restrain violations of this section." Even if breaches of fiduciary duties per se constitute violations of section 302, 3 we held in Snider v. All State Administrators Inc., 481 F.2d 387, 390 (5th Cir. 1973), cert. denied, 415 U.S. 957, 94 S.Ct. 1484, 39 L.Ed.2d 571 (1974), that jurisdiction under section 302(e) "is limited to restraining future violations of the statute and does not include granting relief by way of . . . removal of defalcating trustees or administrators." In Mobile Mechanical Contractors Association v. Carlough, 566 F.2d 1213, 1218-19 (5th Cir. 1977), moreover, we reiterated that section 302(e) jurisdiction is limited to remedies for future violations, and we specifically held that it does not comprehend claims for damages. 4

Without doubt, however, the district court had jurisdiction under ERISA to consider pleas for both removal and damages based on claims of fiduciary misconduct. There is no dispute that the annuity fund is an "employee benefit plan" under ERISA section 3(1), (3), 29 U.S.C. § 1002(1), (3), and therefore, by virtue of sections 4 and 401, 29 U.S.C. §§ 1003, 1101, is subject to ERISA's fiduciary responsibility provisions, sections 401-414, 29 U.S.C. §§ 1101-1114. Among the provisions prescribing conduct for ERISA fiduciaries are the two cited by the court below. Remedies for fiduciary misconduct are set forth in section 409(a), 29 U.S.C. § 1109(a):

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 (ERISA §§ 2-514, 29 U.S.C. §§ 1001-1144) shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to...

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