Painters of Philadelphia Dist. Council No. 21 Welfare Fund v. Price Waterhouse

• Decision Date: 15 August 1989
• Docket Number: No. 21,No. 88-1928,21,88-1928
• Citation: 879 F.2d 1146
• Parties: , 11 Employee Benefits Ca 1261 PAINTERS OF PHILADELPHIA DISTRICT COUNCIL NO. 21 WELFARE FUND and Dalton, William; Johnson, Harold; Clark, George; Doto, Gerard; Tiedeken, Herbert; Schroeder, Richard; Lewin, Herbert; as Trustees of Painters of Philadelphia District CouncilWelfare Fund, Appellants, v. PRICE WATERHOUSE.
• Court: U.S. Court of Appeals — Third Circuit

Page 1146

879 F.2d 1146

58 USLW 2066, 11 Employee Benefits Ca 1261

PAINTERS OF PHILADELPHIA DISTRICT COUNCIL NO. 21 WELFARE

FUND and Dalton, William; Johnson, Harold; Clark, George;

Doto, Gerard; Tiedeken, Herbert; Schroeder, Richard;

Lewin, Herbert; as Trustees of Painters of Philadelphia

District Council No. 21 Welfare Fund, Appellants, v. PRICE WATERHOUSE.

No. 88-1928.

United States Court of Appeals, Third Circuit.

Argued May 23, 1989.

Decided July 10, 1989.

Rehearing and Rehearing In Banc Denied Aug. 15, 1989.

John J. McAleese, Jr. and John H. Widman (argued), McAleese, McGoldrick & Susanin, P.C., King of Prussia, Pa., and Richard B. Sigmond, Spear, Wilderman, Sigmond, Borish & Endy, Philadelphia, Pa., for appellants.

John G. Harkins, Jr., Robert L. Hickok (argued), and Melinda P. Rudolph, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for appellees.

Before BECKER, STAPLETON and ROSENN, Circuit Judges.

OPINION OF THE COURT

STAPLETON, Circuit Judge.

I.

This is an appeal from an order dismissing plaintiffs' complaint for failure to state a claim, 699 F.Supp. 1100. Plaintiffs-Appellants are Painters of Philadelphia District Council No. 21 Welfare Fund and William Dalton, Harold Johnson, George Clark, Gerard Doto, Herbert Tiedeken, Richard Schroeder, Herbert Lewin as trustees of that Fund. Defendant-Appellee is the accounting firm of Price Waterhouse, which performed several yearly audits for the Painters' Fund.

We are asked in this appeal to resolve three principal issues: (1) whether Price Waterhouse was a "fiduciary" of the Fund for the years in question (1978-1982) as that term is defined by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1001-1461 (1982), and consequently whether appellants have an express cause of action against Price Waterhouse under ERISA for breach of fiduciary duty, (2) if Price Waterhouse is not a fiduciary, whether appellants nevertheless have an implied cause of action against it for damages under ERISA, and (3) in the absence of such an implied cause of action, whether there is a corresponding federal common-law cause of action. We hold that Price Waterhouse is not a fiduciary under ERISA and, in view of Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985) and Plucinski v. I.A.M. National Pension Fund, et al., 875 F.2d 1052 (3d Cir.1989), that ERISA does not create an implied cause of action in favor of appellants against Price Waterhouse. We do not reach the question of whether appellants have a federal common-law cause of action because the issue was not raised in the district court.

II.

The Painters of Philadelphia District Council No. 21 Welfare Fund ("Fund") is an employee welfare benefit plan as defined in ERISA. 29 U.S.C. Sec. 1002(1). The Fund provides medical and disability benefits to the employees of various painting and decorating contractors who are parties to collective bargaining agreements with Painters of Philadelphia District Council No. 21.

From April 1, 1978 to July 11, 1986, the administrator of the Fund, Accu-Benefit Plans, Inc. and Rudolph Capri as CEO and controlling owner of Accu-Benefits (collectively hereinafter referred to as "Capri"), performed various functions for the Fund, including direction of office operations, investment of assets at the direction of the trustees, processing of claims for benefits, maintaining financial records, receiving of income, and payment of expenses. Appellants claim that during the course of its administration, Capri defrauded the fund of over $1 million. Capri's fraudulent practices allegedly included grossly overcharging the Fund for administrative services actually performed, collecting fees from the Fund for services not performed, and charging the Fund for expenses not actually incurred and for expenses incurred but not properly chargeable to the Fund.

From April 1978 until after April 1982, Price Waterhouse served as auditor to the Fund. As required by ERISA, 29 U.S.C. Sec. 1023(a)(3)(A), Price Waterhouse performed annual audits of the Fund's books and records. The complaint contains four counts. Count I alleges that, as auditor of the Fund, Price Waterhouse owed the Fund and its participants a fiduciary duty under ERISA to conduct its audits in accordance with generally accepted auditing standards. In addition, the complaint alleges that these standards required Price Waterhouse to make discretionary determinations as to the reasonableness of the fees and expenses paid to Capri and to advise the trustees as to their propriety. Price Waterhouse allegedly violated this fiduciary duty by failing to investigate and evaluate the propriety of the fees and expenses charged by Capri and by failing to notify the Fund, its trustees, and participants of the improprieties.

Count II alleges a breach of a general statutory duty of care implied from ERISA. Before us, appellants urge that this implied duty is a duty to audit in accordance with generally accepted auditing standards. Specifically, the complaint charges that Price Waterhouse conducted periodic audits of the Fund and possessed information concerning the fees charged by Capri, Price Waterhouse represented that it possessed expertise in the area of ERISA fund auditing and should have had knowledge of standard administrative fees charged for services similar to those provided by Capri, the trustees relied upon Price Waterhouse to report to them the improper fees charged the Fund by Capri, and Price Waterhouse was or should have been aware of Capri's breach of its fiduciary duties. Count III sets forth a state-law breach of contract claim and Count IV states a state-law negligence claim.

The district court dismissed the complaint, agreeing with Price Waterhouse that ERISA provides neither an express nor an implied cause of action in favor of a fund and its trustees against an accounting firm that has provided allegedly deficient auditing services.

III.

ERISA provides that a civil action may be brought "by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title." 29 U.S.C. Sec. 1132(a)(2). Section 1109 imposes personal liability on fiduciaries for breaches of their fiduciary duty. ¹ Thus, if Price Waterhouse is a fiduciary for ERISA purposes, the district court erred.

ERISA defines "fiduciary" in Sec. 1002(21)(A):

Except as otherwise provided in subparagraph (B) [addressing plan assets invested in securities issued by an investment company registered under 15 U.S.C.A. Sec. 80a-1 et seq.], a person is a fiduciary with respect to a plan to the extent (i) 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 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 a plan. Such term includes any person designated under section 1105(c)(1)(B)[ ²] of this title.

29 U.S.C. Sec. 1002(21)(A).

Since Price Waterhouse clearly did not have authority or responsibility respecting management of the Fund or control over the disposition of its assets and did not provide investment advice for a fee, appellants concede that Price Waterhouse is not an ERISA fiduciary unless it comes within the scope of (iii) of section 1002(21)(A). Thus, the question presented is whether the performance of a standard audit ³ by an independent public accountant for a fund involves "discretionary authority or discretionary responsibility in the administration of ... a plan."

The role of a fund auditor is set forth in section 1023. That section provides that:

Except as provided in subparagraph (C), the administrator of an employee benefit plan shall engage, on behalf of all plan participants, an independent qualified public accountant, who shall conduct such an examination of any financial statements of the plan, and of other books and records of the plan, as the accountant may deem necessary to enable the accountant to form an opinion as to whether the financial statements and schedules required to be included in the annual report by subsection (b) of this section are presented fairly in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Such an examination shall be conducted in accordance with generally accepted auditing standards, and shall involve such tests of the books and records of the plan as are considered necessary by the independent qualified public accountant. The independent qualified public accountant shall also offer his opinion as to whether the separate schedules specified in subsection (b)(3) of this section and the summary material required under section 1024(b)(3) of this title present fairly, and in all material respects the information contained therein when considered in conjunction with the financial statements taken as a whole. The opinion by the independent qualified public accountant shall be made part of the annual report....

29 U.S.C. Sec. 1023(a)(3)(A).

We conclude that the authority and responsibility assumed by an independent public accountant performing section 1023 tasks do not constitute "discretionary authority or discretionary responsibility in the administration of ... a plan." A section 1023 auditor applies objective criteria to evaluate information provided to it by an organization managed and administered by others. In addition to lacking management authority and control with respect to the disposition of fund assets, an auditor has no authority to administer the day-to-day affairs of the Fund. Thus, for example, it lacks authority to sign checks, to pass upon...