McLaughlin v. Compton

• Decision Date: 21 July 1993
• Docket Number: Civ. A. No. 88-7920.
• Citation: 834 F. Supp. 743
• Parties: Ann McLAUGHLIN, Secretary of The United States Department of Labor, Plaintiff, v. Fred COMPTON, Joseph McHugh, John Neilson, Frederick Hammerschmidt, Gersil N. Kay, Electrical Mechanics Association, the Fidelity-Philadelphia Trust Company and the International Brotherhood of Electrical Workers, Local 98, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

834 F. Supp. 743

Ann McLAUGHLIN, Secretary of The United States Department of Labor, Plaintiff, v. Fred COMPTON, Joseph McHugh, John Neilson, Frederick Hammerschmidt, Gersil N. Kay, Electrical Mechanics Association, the Fidelity-Philadelphia Trust Company and the International Brotherhood of Electrical Workers, Local 98, Defendants.

Civ. A. No. 88-7920.

United States District Court, E.D. Pennsylvania.

July 21, 1993.

William Tedesco, U.S. Dept. of Labor, Office of the Sol., Philadelphia, PA, Brenda Joyce Stovall, U.S. Dept. of Labor, Office of Gen. Counsel, Plan Benefits Div., Washington, DC, for plaintiff.

Laurance E. Baccini, Wolf, Block, Schorr and Solis-Cohen, Bernard N. Katz, Michael Katz, Adam H. Feinstein, Meranze and Katz, Harry P. Blackburn, Beth Z. Palubinsky, N. Marlene Fleming, Blackburn & Michelman, Richard C. McNeill, Richard B. Sigmond, Sagot, Jennings & Sigmond, Philadelphia, PA, for defendants.

MEMORANDUM

ANITA B. BRODY, District Judge.

By the accompanying order, I am vacating my February 11, 1993 order denying the summary judgment motion of plaintiff, the Secretary of the Department of Labor ("the Secretary"), on his complaint alleging violations of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., by Local Union No. 98 International Brotherhood of Electrical Workers Pension Plan ("the Plan") fiduciaries Fred Compton ("Compton"), Joseph McHugh ("McHugh"), John Neilson ("Neilson"), Frederick Hammerschmidt ("Hammerschmidt"), Gersil Kay ("Kay") and the Fidelity-Philadelphia Trust Company ("Fidelity"), and by Plan non-fiduciaries the International Brotherhood of Electrical Workers Local 98 ("Local 98") and the Electrical Mechanics Association ("EMA").

I am being called upon to decide whether ERISA allows me to pierce the corporate veil of a corporation that is not a "party in interest" to the plan as defined by the statute but which is closely related to — but not co-extensive with — a labor organization that is a "party in interest" to the plan in order to find that the pension plan's loan mortgage and subsequent sale of the mortgage note to the corporation is a prohibited "party in interest" transaction. I find that it does not and enter judgment as a matter of law in favor of the non-moving defendants.

A. Procedural background.

The parties had completed briefing the Secretary's summary judgment motion when this case was reassigned to me from the Honorable J. Franklin Van Antwerpen on January 4, 1993. The Secretary identified seventy-two "undisputed" material facts that he contended entitled him to summary judgment. Fidelity and the employer trustees (Hammerschmidt and Kay) admitted most of these facts in their responsive brief.

The parties were unable to identify any disputed material facts during oral argument on January 14, 1993. Local 98 and EMA, however, asked me to consider additional facts that they considered relevant to the threshold issue of whether EMA is the alter ego of Local 98, a real party in interest to the Plan under the statute. They also argued — and I was concerned — that the law of the Third Circuit considers the ability to pierce a corporate veil to be a "fact-intensive question" that requires full factual development at trial. See, e.g., United States v. Pisani, 646 F.2d 83 (3rd Cir.1981) (district court pierced corporate veil after bench trial).

I was reluctant to foreclose any opportunity for the parties to present further facts that could impact on my determination of whether EMA is an alter ego of Local 98. Nonetheless, it was apparent that a full bench trial was unnecessary because there were no credibility issues and that the testimony at trial might merely reiterate admissions already in the record.

I suggested that the parties consider the possibility of my adjudicating the case on the submitted record rather than in the procedural context of a motion for summary judgment. Each party would have an opportunity to amplify the summary judgment record. I also explained that if no party requested cross-examination of any affidavits submitted as part of the record, there would be no need to present live testimony. When the parties responded that they had no objection to my proposal, I issued the following order:

AND NOW, this 11th day of February, 1993, it is ORDERED that plaintiff's motion for summary judgment is DENIED.

It is further ORDERED that the trial shall proceed as a bench trial on the record submitted by the parties and amplified as follows:

1. By February 19, 1993, defendants Compton, McHugh, Neilson, Electrical Mechanics Association and Local 98 shall file and serve responses in numbered paragraphs admitting or denying the numbered paragraphs setting forth the plaintiff Secretary's statement of material facts and the additional material facts identified by Fidelity, Hammerschmidt and Kay.

2. By April 15, 1993, each party shall file and serve (1) any further evidence, including any affidavits and exhibits, that they wish to be considered and which are not yet a part of the record, and (2) any further proposed findings of fact in numbered paragraphs.

3. By April 30, 1993, each party shall file and serve responses in numbered paragraphs admitting or denying any further proposed findings of fact submitted on April 15, 1993.

4. By April 30, 1993, each party shall file and serve its proposed conclusions of law and a statement of any evidentiary objections to the evidence submitted to the Court. The parties shall also identify any areas of cross-examination on the affidavits submitted as part of the record which the Court may consider hearing.

5. This case shall be stricken from the trial pool.

The Secretary, Local 98 and EMA submitted additional proposed findings of fact on April 15, 1993. The Secretary subsequently admitted all but one of Local 98 and EMA's proposed findings of fact.¹ This exercise confirmed that all of the material facts relevant to the issues before me are undisputed by the parties.² On May 10, 1993, the parties submitted their proposed conclusions of law.

On June 1, 1993, the United States Supreme Court decided Mertens v. Hewitt Associates, ___ U.S. ___, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993). I issued an order on June 8, 1993 allowing the parties until June 25, 1993 to submit briefs addressing the impact of Mertens, if any, on the instant case.

The impact of Mertens on the instant case has caused me to reconsider my prior order simply denying the Secretary's motion for summary judgment. As I may modify or rescind a prior interlocutory order at any time until a final decree is entered, I will vacate my February 11, 1993 order denying the Secretary's summary judgment motion. Federal Rule of Civil Procedure 54(b) ("... the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of the parties."). See also Lavespere v. Niagara Mach. & Tool Works, Inc., 910 F.2d 167, 185 (5th Cir.1990) ("... we acknowledge that a new decision clarifying the applicable law may justify reexamining a denial of summary judgment."); Kenyatta v. Moore, 623 F.Supp. 220, 222 (D.C.Miss.1985).

Mertens now compels me to enter judgment in favor of the nonmoving defendants. A leading commentator notes that "the weight of the authority is that summary judgment may be rendered in favor of the opposing party even though he has made no formal cross-motion under rule 56." 10A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil 2d § 2720 (1983) (collecting cases). See also Johnson v. Bismarck Public School Dist., 949 F.2d 1000, 1004-05 (8th Cir.1991) (affirming summary judgment in favor of non-moving party where movant asked court to rule on issue on summary judgment basis and there was no showing that movant did not have full and fair opportunity to develop the record); Missouri Pacific Railroad v. National Milling Co., 409 F.2d 882, 885 (3rd Cir.1969) (summary judgment properly awarded to non-moving party in absence of cross-motion where record supported result); Selected Risks Ins. Co. v. Bruno, 555 F.Supp. 590, 595 (M.D.Pa. 1982), rev'd on other grounds, 718 F.2d 67 (3rd Cir.1983).

Wright and Miller cautions that "whenever the court believes that the non-moving party is entitled to judgment, great care must be exercised to assure that the original movant has had an adequate opportunity to show that there is a genuine issue and that his opponent is not entitled to judgment as a matter of law." Since my denial of summary judgment, the parties have expanded and amplified the record and briefed the applicable law. I now determine that, under the current law, the Secretary cannot maintain this action on these facts as a matter of law.

B. Because ERISA must be strictly construed, the defendants did not violate prohibitions on party in interest transactions because EMA was not a party in interest as defined by the statute.

The threshold question in this protracted litigation is whether ERISA prohibitions enacted in 1974 against transactions between a pension plan and a party in interest to the plan required the defendants to correct a 1972 mortgage loan by the Plan to EMA, a non-profit corporation incorporated in the 1920's to promote unity among and further instruction to members of the electrical trade.

The Secretary admits that EMA is not a party in interest to the Plan, but asks that I pierce EMA's corporate veil to find that the Plan's loan to EMA was, in fact, a prohibited loan to Local 98, an admitted party in interest. Prior to Mertens, I may have been inclined to pursue the alter ego analysis. However, after the instruction in Mertens, I clearly cannot impose liability unless the statute explicitly prohibits the challenged transactions as a party in interest transaction.³

In Mertens, the Supreme Court forcefully reiterated earlier directives to strictly construe the statute. See, e.g., ...