Lentino v. Fringe Emp. Plans, Inc.

• Decision Date: 18 December 1979
• Docket Number: No. 78-1110,78-1110
• Citation: 611 F.2d 474
• Parties: Frank LENTINO and Perry Flame, Trustees of the Teamsters Local 158 Severance Pay Plan, Appellants, v. FRINGE EMPLOYEE PLANS, INC., Fringe Programs, Inc., 377 Fifth Avenue, New York, New York 10016 and Howard Casper and Mark Muller, Individually and trading as Casper & Muller, a partnership, and Jack Miller, Ray A. Oates, Max Cohen, Harold Kapp and Robert G. Sloane, Individually and as former trustees of the Teamsters Union 158 Severance Pay Plan, Appellees, v. J. B. JACKSON et al. (Third-party Defendants).
• Court: U.S. Court of Appeals — Third Circuit

Page 474

611 F.2d 474

Frank LENTINO and Perry Flame, Trustees of the Teamsters

Local 158 Severance Pay Plan, Appellants, v.FRINGE EMPLOYEE PLANS, INC., Fringe Programs, Inc., 377

Fifth Avenue, New York, New York 10016 and Howard Casper and

Mark Muller, Individually and trading as Casper & Muller, apartnership, and Jack Miller, Ray A. Oates, Max Cohen,Harold Kapp and Robert G. Sloane, Individually and as formertrustees of the Teamsters Union 158 Severance Pay Plan, Appellees, v.J. B. JACKSON et al. (Third-party Defendants).

No. 78-1110.

United States Court of Appeals Third Circuit.

Argued Sept. 4, 1979.

Decided Dec. 18, 1979.

Kenneth S. Hall(argued), Philadelphia, Pa., for appellants.

R. M. Jordan(argued), Robert F. Roach, White & Williams, Philadelphia, Pa., for appellees.

Before ADAMS, HUNTER, and HIGGINBOTHAM, Circuit Judges.

OPINION OF THE COURT

JAMES HUNTER, III, Circuit Judge:

This is an appeal from the grant of a Rule 50(a)motion for a directed verdict.¹Appellants, plaintiffs below, contend that the directed verdict was improper because it was granted prior to the close of plaintiffs' evidence.We conclude that appellants were not prejudiced by the exclusion of the final item in their case and affirm the order of the district court.

Plaintiffs are the current trustees of the Employee Severance Pay Plan of Teamsters Local 158 (the Plan), a plan designed to provide benefits to employees upon the termination of their employment.The defendants are Fringe Employee Plans, Inc.(Fringe), the drafters and administrators of the Plan, Mark Muller, legal counsel to the Plan, and his law partner, Howard Casper.²

The Plan, as set forth in a collective bargaining agreement between employers and Teamsters Local 158, was to provide that an inception employee, one employed at the time an employer entered the Plan, would receive, at the time of his severance, 100% Of all employer contributions made on his behalf.A non-inception employee would receive, at the time of his severance, a smaller percentage of employer contributions made on his behalf; the difference would be used to pay for costs of the Plan.The Plan actually drafted by Fringe, however, required all employees, including inception employees, to bear the cost of administering the Plan through pro-rata deductions from their benefits.

Muller's first task as counsel for the Plan was to submit the drafted plan to the IRS for approval.IRS approval would insure that the employers could deduct contributions to the plan as business expenses.In December, 1971, the IRS approved the plan as drafted.

The trustees of the plan, relying on the initial collective bargaining agreement and on materials from Fringe, in its capacity as plan administrator, proceeded to pay out 100% Of employer contributions to severed inception employees, contrary to the provisions of the actual plan.The error was finally discovered in mid-1973, during an audit of the Plan.As a result of the discovery, all payments were suspended until August 8 of that year when the trustees met and, on the recommendation of Fringe and Muller, voted to resume 100% Payouts and to seek to have an amended plan approved by the IRS.Muller was to submit this amended plan, which included a 100% Payout provision.Although 100% Payouts continued, the amended Plan was never submitted for IRS approval.In 1975, Muller suggested delaying submission of the amended Plan until the IRS ruled on a similar plan, that of Local 463, then under consideration by the Service.Eventually, the IRS disapproved Local 463's plan.Prior to that time, Muller resigned as Plan Counsel.Subsequently, the Plan was terminated.

Plaintiffs sued, alleging that all defendants had breached fiduciary duties under the Employee Retirement Income Security Act (ERISA),29 U.S.C. §§ 1001-1381,1109 (1976).Plaintiffs also alleged legal malpractice against attorneys Muller and Casper.

On the morning of trial, Fringe failed to appear and a default judgment was entered.At this time, plaintiffs, recognizing their inability to prove the existence of a fiduciary relationship, dropped their ERISA allegations against the lawyers and proceeded on the malpractice claim alone.Defendants Casper and Muller promptly moved for dismissal for want of subject matter jurisdiction.The motion was denied.

The plaintiffs advance two theories of malpractice.First, that Muller's advice to continue 100% Payout was negligent.Second, that the subsequent failure to submit the amended plan to the IRS constituted malpractice.At the end of its case, plaintiffs, over objection, sought to introduce the Local 463 plan into evidence, purportedly to show how the Local 158 plan would have fared had it been submitted to the IRS for consideration.The district court inquired whether plaintiffs intended to introduce expert testimony to establish the appropriate standard of care and to explain the relationship between the two plans.Plaintiffs answered in the negative, indicating that following the admission of the Local 463 plan their malpractice case would be closed.The district court granted defendants' motion for directed verdict.Plaintiffs appeal only the dismissal of the malpractice claim against Muller.

JURISDICTION

Before examining the merits of plaintiffs' appeal, we must address the threshold question of whether the district court properly exercised federal subject matter jurisdiction over the malpractice claim against Muller.Appellant asserts two grounds for jurisdiction: diversity and pendent jurisdiction.

The assertion of diversity is frivolous and may be summarily dismissed.Allegations of the citizenship of all parties to the lawsuit must appear in the complaint.See, e. g., Guerrino v. Ohio Casualty Ins. Co., 423 F.2d 419, 421(3d Cir.1970).In this case, the complaint contains no such allegations.Nor does the trial record contain any evidence of the citizenship of the plaintiffs or the defendants.

There are, however, two possible bases of pendent jurisdiction in this case.First, the malpractice claim may be pendent to the ERISA claim against Muller for breach of fiduciary duty.This will be designated "pendent jurisdiction."Second, the malpractice claim may be pendent to the ERISA claim against Fringe.This will be designated "pendent-party jurisdiction."Unfortunately, it is impossible to determine on which of these grounds the district court based jurisdiction.³Accordingly, we will first address pendent jurisdiction.Because of our disposition of that issue it will be unnecessary to address pendent party jurisdiction.

PENDENT JURISDICTION

Pendent jurisdiction, the ability of a federal court to hear a jurisdictionally insufficient claim which is linked to a jurisdictionally sufficient claim, is grounded in the interest of both the parties and the judicial system in having all of the claims between litigants both federal and state, resolved in one suit.SeeRosado v. Wyman, 397 U.S. 397, 405, 90 S.Ct. 1207, 25 L.Ed.2d 442(1970).It is, of course, necessary to reconcile this goal with the limits of the constitutional grant of federal jurisdiction to cases arising under federal law.U.S.Const., Art. III, § 2.It has long been held, however, that the Article III grant is broader than merely a grant over federal "claims" but encompasses all claims in "cases" arising under federal law.SeeOsborn v. Bank of the United States, 22 U.S. (9 Wheat.) 738, 820, 6 L.Ed. 204(1824).

In United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218(1966), the Supreme Court described those situations in which it is proper for a federal court to exercise pendent jurisdiction.Federal courts have the constitutional Power to exercise pendent jurisdiction when the state and federal claims derive from a common nucleus of operative fact, such that the plaintiff would ordinarily be expected to try them all in one judicial proceeding, and when the federal claim has sufficient substance to confer subject matter jurisdiction on the court.383 U.S. at 725, 86 S.Ct. 1130.Even if these constitutional requirements are met, the court has broad discretionary powers to decline pendent jurisdiction after considering judicial economy, convenience, fairness to the parties, and comity.Id. at 726, 86 S.Ct. 1130.

Constitutional power to adjudicate a pendent claim is ordinarily to be determined by reference to the pleadings, not on the facts as they may eventually be established.Elberti v. Kunsman, 376 F.2d 567, 568(3d Cir.1967).SeeUnited Mine Workers v. Gibbs, 383 U.S. 715, 727, 86 S.Ct. 1130, 16 L.Ed.2d 218(1966);Knuth v. Erie-Crawford Dairy Coop. Ass'n, 395 F.2d 420, 426(3d Cir.1968), Cert. denied, 410 U.S. 913, 93 S.Ct. 966, 35 L.Ed.2d 278(1973).In the instant caseplaintiffs alleged a substantial federal claim.Section 3(21)(A) of ERISA,29 U.S.C. § 1002(21)(A)(1976), defines a fiduciary as a person who "exercises any discretionary authority or discretionary control respecting management of (a) plan" or who "has any discretionary authority or discretionary responsibility in the administration of such plan."Section 409 of the Act, 29 U.S.C. § 1109, creates liability for breach of fiduciary duty.Section 404,29 U.S.C. § 1104, defines the standard of care which fiduciary must exercise "with respect to a plan."The complaint charged that defendant Muller was a fiduciary as defined by 3(21)(A) of ERISA,29 U.S.C. § 1002(21)(A), that he advised the trustees of the Plan to continue to make 100% Payments in violation of the trust agreement, and that he failed to amend the Plan to conform with the payments being made, as he had represented to the trustees that he would.The allegations certainly stated a substantial federal claim.Cf.Hagans v. Levine, 415 U.S. 528, 536-37, 94 S.Ct. 1372, 39 L.Ed.2d 577(1974)(defining constitutional insubstantiality as "wholly insubstantial" and "obviously frivolous").It is equally clear that the...