Marshall v. Snyder

• Citation: 572 F.2d 894
• Decision Date: 17 February 1978
• Docket Number: D,Nos. 88-90,s. 88-90
• Parties: 1 Employee Benefits Ca 1573 F. Ray MARSHALL, Secretary of Labor, Plaintiff-Appellee, v. George SNYDER, Irving Rosenzweig, Anthony Calagna, Clarence Clarke, James Isola, William Snyder, Joseph Grippo, Benjamin Petcove, General Teamsters Industrial Employees Local 806, 806 Record Processors, Inc., Defendants-Appellants. ockets 77-6078, 77-6081, 77-6083.
• Court: U.S. Court of Appeals — Second Circuit

Page 894

572 F.2d 894

1 Employee Benefits Ca 1573

F. Ray MARSHALL, Secretary of Labor, Plaintiff-Appellee, v. George SNYDER, Irving Rosenzweig, Anthony Calagna, Clarence Clarke, James Isola, William Snyder, Joseph Grippo, Benjamin Petcove, General Teamsters Industrial Employees Local 806 806 Record Processors, Inc., Defendants-Appellants.

Nos. 88-90, Dockets 77-6078, 77-6081, 77-6083.

United States Court of Appeals Second Circuit.

Argued Sept. 12, 1977.

Decided Feb. 17, 1978.

Mary S. Calfee, Washington, D. C. (Carin Ann Clauss, Sol. of Labor, Steven J. Sacher, Monica Gallagher, Sherwin Kaplan, Plan Benefits Sec. Div., Washington, D. C., and Francis V. La Ruffa, Regional Sol., U. S. Dept. of Labor, New York City, of counsel), for Secretary, appellee.

Mark Lemle Amsterdam, New York City (Rubin, Hanley & Amsterdam, New York City, of counsel), for appellants General Teamsters Industrial Emp. Local 806 and 806 Record Processors, Inc. Michael Lesch, New York City (Shea, Gould, Climenko & Casey and Arthur D. Felsenfeld, New York City, of counsel), for appellants Calagna, Clarke, Grippo, Isola, Petcove and William Snyder.

Charles F. Murphy, New York City (Murphy & Maviglia, New York City, of counsel), for appellants George Snyder and Rosenzweig.

Before MANSFIELD and TIMBERS, Circuit Judges, and DOOLING, District Judge. ^*

DOOLING, District Judge.

The Secretary of Labor commenced the present action on January 20, 1977, under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001, et seq., against certain present and former trustees of three employee benefit plans of General Teamsters Industrial Employees Local 806, against Local 806, and against 806 Record Processors, Inc., a corporation all of the outstanding stock of which is owned by one of three employee benefit plans, Local 806 Teamsters Health and Welfare Fund. The charge of the complaint is that the present and former employee benefit plan trustees have permitted and are permitting the expenditure of unwarranted sums of money from the plan assets, including (a) making payments totalling about $1,000,000 to defendant trustee George Snyder (allegedly an amount far in excess of reasonable compensation for any services he actually rendered); (b) expending about $380,000 to refurbish office quarters for the Union and for the Welfare, Annuity and Pension Plans, in violation of the fiduciary duties imposed by 29 U.S.C. § 1104(a)(1)(A) and (B); and (c) by transferring $300,000 of Welfare Plan assets to defendant 806 Record Processors, Inc., ("RPI") in exchange for all of its stock, and then causing RPI to lend $290,000 to Local 806. The complaint prayed for an order removing from fiduciary office each defendant presently serving as a trustee and enjoining each individual defendant from further serving as a fiduciary of any of the employee benefit plans or of any other employee benefit plan for at least five years; the court was asked to supervise the installation of successor trustees independent of the present defendants for each of the three plans, meanwhile appointing an interim receiver to assume the duties of the defendant trustees pendente lite ; the complaint further prayed for the rescission of the transactions by which assets of the Welfare Plan were transferred to RPI, for the dissolution of RPI, and an accounting of its assets, and for a judgment against defendants for restitution, including lost profits, of all amounts paid in connection with the matters alleged on and after January 1, 1975 from the Welfare or Pension Plan assets to the extent that they exceeded the reasonable expense of administering the plans.

On February 4, 1977, the defendants consented, by stipulation with the Secretary, but without admitting any allegations of the complaint, to an order, effective during the pendency of the action and until further order of court that the defendant trustees of the Welfare Fund, Pension Fund, and Annuity Fund should neither make nor permit to be made any direct or indirect payments for any purpose from the assets of the funds to defendant George Snyder or to any other individual defendant, to Local 806, or for the benefit of any of said defendants; the order further provided that defendant RPI should not make nor permit to be made any direct or indirect payments for any purpose from its assets to defendant George Snyder, to any other individual defendant, to defendant Local 806 or for the benefit of any of the named defendants

"with the only exception that 806 Record Processors, Inc. may continue to make salary payments for services actually rendered to defendants Clarence Clarke, Anthony Calagna, James Isola and William Snyder in amounts not exceeding the following:

                                 Maximum
                                   Per
                                  Week
                Anthony Calagna   $750
                Clarence Clarke   $300
                James Isola       $825
                William Snyder    $600"
                

The order further provided that the books of the funds and of RPI should be made available for inspection and copying to the Secretary's attorneys or agents during normal business hours on one day's notice.

On April 8, 1977, the Secretary moved by Order to Show Cause to punish certain of the defendants for contempt and for the appointment of a receiver to assume full direction and control of the operations and expenditures of the Local 806 Welfare, Pension and Annuity Plans and of RPI, and for further relief with respect to discovery and inspection of the records of the defendant entities. After a full evidentiary hearing Judge Pratt granted the Secretary's motion to the extent of enjoining all defendants pendente lite from making or permitting to be made any payments by RPI or any of the employee benefit plans to defendants Calagna, Isola, William Snyder or Clarke, and appointed a receiver of the Welfare, Pension and Annuity Funds and of RPI pending final determination of the action. A detailed receivership order was entered later which vested the receiver with legal title to and exclusive possession and control of all of the assets and property of the three employee benefit plans and of RPI, in trust nevertheless for the participants and beneficiaries of the three plans. The receiver was specifically empowered, in ultimate substance, to conduct the affairs of the employee benefit plans and of RPI; the defendants and their agents were enjoined from dealing in any way with the assets, records or property of any of the employee benefit plans or of RPI, and were enjoined from interfering with the receiver's administration in any way. The receiver was directed to undertake a review of the manner of administering the plans and RPI in order to determine generally what changes if any in administration were necessary to the lawful and orderly operation of the plans and of RPI under his receivership, and to report to the Court any proposed changes as well as a proposal for the future administration of the plans and of RPI. The orders were based on very full findings of fact which are amply supported in the evidentiary record.

While, as Judge Pratt recognized, the relief that he granted was drastic, the evidence inescapably led Judge Pratt to his conclusion (430 F.Supp. at 1232) that, "The inherent conflict of interest and potential for self-dealing which result from the union officers' controlling both the Plans and RPI, which is the administrative agent of the Plans, coupled with the actual conduct of the defendants since the consent order, and when interpreted in the light of the serious charges of misappropriation of trust fund monies alleged in the complaint, require immediate and drastic action by the court in order to preserve from further dissipation the assets of the Plans for the benefit of their participants and beneficiaries." The orders appealed from must therefore be affirmed. It may be that, inasmuch as the trustees of the Plans are defendants in the action, effective relief can be granted without joinder of the three plans as parties to the proceeding. The plans, however, are clearly proper if not indispensable parties to the proceeding, and it would appear that if, as may be unavoidable, the Secretary will press for very broad relief affecting many aspects of the three plans and their administration, they should be joined as proper parties defendant which may later become necessary parties. Joinder of the plans as parties will provide assurance that complete relief can be accorded among those already parties, and including the plans themselves, as Rule 19(a) of the Rules of Civil Procedure contemplates, and it is clear, of course, that the plans may properly be joined under Rule 20(a) in any case, even though they may not be interested in obtaining or in defending against all of the relief demanded.

It is not necessary to review the facts in detail. Local 806 had approximately 2,162 dues paying members in 120 shops of 102 employers. The dues income of Local 806 was about $350,000 a year. There were 2,040 members of Local 806 who were participants in the Welfare Fund, and it has been estimated that there could be as many as 10,000 potential beneficiaries of the Welfare Fund. The Welfare Fund receives about $1,000,000 a year in employer contributions. The Pension and Retirement Fund (hereafter the Pension Fund) covered 1,032 members, and receives approximately $300,000 a year in employer contributions. The Annuity Fund receives about $75,000 a year of such contributions. Claims processed for the Welfare Fund approximate 200 to 300 a month, and there are 74 pensioners.

For its services in administering the three plans RPI received about $300,000 a year, $25,000 a month, from the Welfare Plan, and received two or three thousand dollars a month from the Pension Fund. The record is clear that only one RPI employee worked exclusively on Plan matters, an experienced medical claims examiner, who received $2,000 for her work from February 7 to April 19, 1977, a period during which,...