Nelson v. Joyce

• Decision Date: 09 December 1975
• Docket Number: No. 74 C 631.,74 C 631.
• Citation: 404 F. Supp. 489
• Parties: Edwin NELSON, Plaintiff, v. William D. JOYCE et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

404 F. Supp. 489

Edwin NELSON, Plaintiff, v. William D. JOYCE et al., Defendants.

No. 74 C 631.

United States District Court, N. D. Illinois, E. D.

December 9, 1975.

Clarence M. Dunagan, Chicago, Ill., for plaintiff.

Eugene I. Pavalon and Leo Segall, Asher, Greenfield, Gubbins & Segall, Chicago, Ill., for defendants.

MEMORANDUM DECISION

MARSHALL, District Judge.

The plaintiff, Edwin Nelson, complains of the defendant Trustees' decision that he is ineligible to receive pension benefits from the Local 710 Pension Fund. The defendants, the Trustees of the Pension Fund, contend that Nelson is a partner rather than an employee, and as such, is prohibited from receiving Pension Fund benefits. Pending for decision are cross motions for summary judgment.

Edwin Nelson was a partner in the Nightway Transportation Company, a trucking concern owned by Nelson and his brothers, from its establishment in 1944 until its dissolution in 1967. In 1967 the concern was incorporated, retaining the name Nightway Transportation Company. Nelson continued to work for the corporation until his retirement in 1969. He was a member of the International Brotherhood of Teamsters, Local 710, from 1937 or 1938 until his retirement in 1969. The Nightway partnership, and later the Nightway corporation, paid a total of $3,684 into the Local 710 Pension Fund on Nelson's behalf. After his retirement, Nelson applied for a pension. The Trustees refused his application and tendered a refund of the contributions made in his behalf.

The controversy centers on the meaning of the word "employee." The Local 710 Pension Fund is a jointly administered multi-employer pension plan, established pursuant to the authority granted by the Labor-Management Relations Act, 29 U.S.C. § 186(c)(5). According to this section, the pension fund must be operated for the "sole and exclusive benefit" of employees. The plan also enjoys tax exempt status as a qualified plan under the Internal Revenue Code. This tax exempt status is limited to "voluntary employees' beneficiary associations." 26 U.S.C. § 501(c)(9). The Trustees contend that Nelson, as a partner, was not an employee within the meaning of these two provisions. Nelson argues that despite his status as partner, he was an employee within the meaning of these statutes and is eligible for a pension.

There is no doubt that Edwin Nelson was a partner in the Nightway Transportation Company before its incorporation. According to the deposition of his brother and fellow partner, Nelson was an equal partner (p. 4) and was paid a draw against his partnership interest (p. 13). As his contribution to the partnership, he drove delivery trucks and acted as a mechanic (pp. 5-7). Because his status as a partner is undisputed, the issues for decision are: (1) whether a pension fund which distributes benefits to a partner will lose the tax exemption granted to "voluntary employees' beneficiary associations" in 26 U.S.C. § 501(c)(9); and (2) whether a partner may participate in a trust fund established for the "sole and exclusive benefit" of employees under 29 U.S. C. § 186(c)(5). If the first question is answered affirmatively, the second question need not be reached.

A threshold question is the standard for review of the Trustees' decision denying Nelson's pension application. Most courts will review an eligibility decision only to the extent necessary to determine whether the trustees acted arbitrarily, capriciously, or in bad faith. E. g., Gaydosh v. Lewis, 133 U.S. App.D.C. 274, 410 F.2d 262, 265 (1969); Insley v. Joyce, 330 F.Supp. 1228, 1233 (N.D.Ill.1971); Haynes v. Lewis, 298 F.Supp. 331, 334 (D.D.C.1969). The issue in these cases was the trustees' interpretation and application of an eligibility requirement adopted pursuant to their authority to administer the fund. Generally, the trust instrument gives the trustees full authority to establish and apply eligibility requirements, subject only to the purpose of the fund and to the provisions of the Labor-Management Relations Act. See, e. g., Gomez v. Lewis, 414 F.2d 1312, 1314 (3d Cir. 1969); amended agreement and declaration of trust creating the Local 710 pension fund, § 10. Under these circumstances, the courts' use of the arbitrary and capricious standard of review is consonant with the trustees broad discretion. Some courts have suggested, however, that this standard should apply only to decisions involving the trustees' discretion, and that questions of law should be reviewed more carefully. If the trustees make an error of law, these courts would correct it. See Danti v. Lewis, 114 U.S.App.D.C. 105, 312 F.2d 345, 348 (1962); Patterson v. United Mine Workers Welfare & Retirement Fund, 346 F.Supp. 11, 13 (E.D.Tenn. 1971); Bolgar v. Lewis, 238 F.Supp. 595, 597 (W.D.Pa.1960); Hurd v. Ill. Bell Telephone Co., 136 F.Supp. 125,...