Mutual Life Ins. Co. of New York v. Yampol

• Decision Date: 13 April 1988
• Docket Number: No. 86-3136,86-3136
• Citation: 840 F.2d 421
• Parties: , 9 Employee Benefits Ca 1556 The MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Plaintiff-Appellant, v. Hillel YAMPOL, Jay Shlofroch, Morris Shlofroch, and Benefit Center Limited, Defendants-Appellees. Hillel YAMPOL, Counterplaintiff-Third Party Plaintiff, v. The MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Counterdefendant, and Sheldon Robinson and Associated Financial Consultants, Inc., Third Party Defendants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 421

840 F.2d 421

56 USLW 2524, 9 Employee Benefits Ca 1556

The MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Plaintiff-Appellant, v. Hillel YAMPOL, Jay Shlofroch, Morris Shlofroch, and Benefit

Center Limited, Defendants-Appellees.

Hillel YAMPOL, Counterplaintiff-Third Party Plaintiff, v. The MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Counterdefendant, and Sheldon Robinson and Associated Financial Consultants, Inc.,

Third Party Defendants.

No. 86-3136.

United States Court of Appeals, Seventh Circuit.

Argued June 2, 1987.

Decided Feb. 5, 1988.

Rehearing and Rehearing En Banc Denied April 13, 1988.

Donald E. Casey, Springer, Casey, Dienstag & Silverman, P.C., Chicago, Ill., for plaintiff-counter/defendant-appellant.

Gary Starkman, Arvey, Hodes, Costello & Burman, Chicago, Ill., for defendant-counter/plaintiff-appellee.

Before BAUER, Chief Judge, COFFEY, Circuit Judge, and ESCHBACH, Senior Circuit Judge.

ESCHBACH, Senior Circuit Judge.

The Mutual Life Insurance Company of New York ("MONY") filed suit in 1983 against several defendants alleging that the defendants had breached their fiduciary duties to the National Health Care Trust ("Trust") in violation of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1001, et seq. In filing suit, MONY was acting as the assignee of the Illinois Director of Insurance ("Director"), who is acting under a state court order to liquidate the Trust. People of the State of Illinois ex rel. O'Connor v. National Health Care Trust, et al., No. 82 CH 14 (Order of Feb. 9, 1982). The question we must answer in this appeal is whether the district court was correct to dismiss the complaint on the ground that MONY had no standing under ERISA to bring the present action. MONY argues that the Director qualifies as a fiduciary of the Trust under 29 U.S.C. Sec. 1002(21), and that as his assignee, MONY has standing to sue the defendants for breach of their fiduciary duties under 29 U.S.C. Sec. 1132(a)(2). We agree that the Director qualifies as a fiduciary under the plain language of ERISA, 29 U.S.C. Sec. 1002(21), and will therefore reverse and remand.

I

The Trust is, according to MONY's first amended complaint, a self-insured employee benefit plan established as part of a "Plan of Hospital and Medical Coverage" pursuant to ERISA Sec. 4(a), 29 U.S.C. Sec. 1003(a). The Trust provides benefits for employees of various Illinois nursing homes. MONY describes itself as an "excess insurer" of the trust's health plan. MONY alleges that defendants Hillel Yampol ("Yampol"), Jay Shlofroch, Morris Shlofroch, and Benefit Center, Ltd., managed the affairs of the Trust from March 1, 1980 and that, in so doing, each was obligated to manage the Trust in accord with the fiduciary duties established by 29 U.S.C. Sec. 1104. MONY further alleges, in two separate counts, that the defendants violated their fiduciary duties to the detriment of the Trust.

At some point in 1982 the Illinois Director of Insurance initiated an action in the Cook County Circuit Court for the liquidation of the Trust, People of the State of Illinois ex rel. O'Connor v. National Health Care Trust, et al., No. 82 CH 14, in which action the defendants Yampol and Jay Shlofroch (according to the complaint) voluntarily appeared and consented on behalf of the Trust to the appointment of the Director as Liquidator.

Pursuant to the order of liquidation entered by the Cook County court on February 9, 1982, and the pertinent provisions of the Illinois Insurance Code, Ill.Rev.Stat. ch. 73, paragraphs 799 to 833.11 (Smith-Hurd 1965 and Supp.1987), the Director was "vested by operation of law with the title to all property, contracts and rights of action of the company...." Ill.Rev.Stat. ch. 73, p 803. On November 15, 1982 the Director assigned to MONY "the right to pursue, at its own expense, all claims and causes of action of NHC [National Health Care] Trust to recover amounts due to NHC Trust and ... authorized [MONY] to do so in its own name, or as assignee of the Liquidator of NHC Trust." Agreement of November 15, 1982, at 4. In return, the Agreement recited that MONY had loaned the Director $325,000 to pay claims incurred by the Trust. ¹ Id. at 2. The agreement was approved by the county court overseeing the liquidation proceedings.

Acting under the authority of this agreement, MONY filed an action alleging that the defendants had violated their fiduciary duties during their administration of the Trust. Defendant Yampol filed a motion to dismiss the complaint on the ground that MONY had no standing. The district court denied this motion and the request that it reconsider that decision. MONY later filed a first amended complaint clarifying that it was the Director's assignee but otherwise essentially reiterating the claims of the original complaint. Defendant Yampol renewed its motion to dismiss the complaint and the district judge again denied the motion. At this point the action was reassigned to another district judge.

Having lost its motion to dismiss, Yampol filed its answer to the first amended complaint. Yampol also filed a counterclaim against MONY and a third party complaint against Sheldon Robinson and Associated Financial Consultants, Inc. ("AFC"). Third party defendants Robinson and AFC then filed their own motion to dismiss the complaint, based on the same ground earlier asserted by the defendants. The second district judge granted the motion, determining that ERISA provided no standing for MONY. MONY now appeals.

II

MONY asserts that ERISA provides jurisdiction for its claim under two distinct rationales. MONY claims that ERISA's jurisdictional provision is not exclusive, see 29 U.S.C. Sec. 1132(e) ², and that the Trust itself has standing to bring an action under 29 U.S.C. Sec. 1132(a)(2) for relief from breaches of fiduciary duty, see 29 U.S.C. Sec. 1109, simply because it is an ERISA plan. ³ MONY also asserts that the Director as Liquidator of the Trust is an ERISA fiduciary, and that MONY, as the Director's assignee, may therefore bring suit as a fiduciary under 29 U.S.C. Sec. 1132(a)(2). Because the Director qualifies as a fiduciary under the plain language of the statute, see 29 U.S.C. Sec. 1002(21), we hold that MONY has properly invoked the jurisdiction of the federal courts. We therefore do not consider MONY's assertion that the plan itself would have standing to pursue the claim, even though ERISA plans are not named as one of the several entities provided standing under ERISA's jurisdictional and standing provisions. See 29 U.S.C. Secs. 1132(a), 1132(e)(1).

Fiduciaries are expressly provided standing to bring actions for relief from breaches of fiduciary duty. 29 U.S.C. Sec. 1132(a)(2); see id. Sec. 1109 (making fiduciaries liable for breaches of their fiduciary duties); id. Sec. 1104 (defining a fiduciary's duties). Section 1002(21) of Title 29 provides in pertinent part that for the purposes of ERISA a person is a fiduciary

to the extent (i) that he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation direct or indirect, with respect to any moneys or other property of such a plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

We agree with the first district judge who decided this question below that the Director's responsibilities with regard to the Trust fall well within the parameters of this language.

Under the Illinois statutory provisions detailing his duties and powers as Liquidator, the Director possesses significant authority and control over the management and disposition of any company he is authorized to liquidate. Ill.Rev.Stat. ch. 73, p 805 (Smith-Hurd 1965 & Supp.1987). ⁴ Among other rights and responsibilities, the Director may, subject to the approval of the state court, sell or otherwise dispose of the real and personal property of the Trust. He may also sell or compromise all doubtful or uncollectible debts or claims of the Trust, again with the approval of the state court. The Director may also solicit contracts whereby solvent companies assume the liabilities owing to the Trust's policyholders and such other creditors "as may be possible." He may use the assets of the Trust to reinsure or cede as much business as necessary. Id.

The Illinois statutory provisions direct that the state courts shall by written order approve the Director's acts and authorize him to enter into such contracts if the court finds that the Director has endeavored to find, and has indeed found, the "best possible contract" in the interests of the policyholders of the Trust and such other creditors as may be possible. Id. There thus can be no doubt the Director exercises a significant degree of control, authority and responsibility in the management of the Trust and the disposition of its assets. See, e.g., Chicago Board of Options Exchange v. Connecticut General Life Insurance Co., 713 F.2d 254, 258-60 (7th Cir.1983) (power to alter an annuity contract that was an asset of an ERISA plan enough to qualify as a fiduciary). Under the application of the plain language of ERISA the Director is therefore a fiduciary.

While the Director falls within the ERISA definition of fiduciary given a literal reading of its definition, we note that the result is underscored by this court's consistently broad reading of that definition. Ed Miniat, Inc. v. Globe Life Insurance Group, Inc., 805 F.2d 732, 735-38 (7th Cir.1986); Leigh v. Engle, 727 F.2d 113, 133-34 (7th Cir.1984); Chicago Board of Options Exchange, 713 F.2d at 258-60; Schulist v. Blue Cross of Iowa, 717 F.2d 1127, 1131 & n. 4 (7th Cir.1983); Thornton v. Evans, 692 F.2d 1064, 1077 (7th Cir.1982).

The Director does not, of...