Physicians Healthchoice v. AUTOMOTIVE EMP. BEN. T.

• Citation: 764 F. Supp. 1360
• Decision Date: 30 May 1991
• Docket Number: Civ. No. 4-90-789.
• Parties: PHYSICIANS HEALTHCHOICE, INC., as assignee of the rights of certain members of the Automotive Employee Benefit Trust, Plaintiff, v. The TRUSTEES OF THE AUTOMOTIVE EMPLOYEE BENEFIT TRUST, including Alfred S. Brodie, Joseph Garbina, Gerald R. Kottschade, Florence Markert, and other presently unidentified "John Doe" individuals, Defendants. The TRUSTEES OF THE AUTOMOTIVE EMPLOYEE BENEFIT TRUST, including Alfred S. Brodie, Joseph Garbina, Gerald R. Kottschade, Florence Markert, Counter-claimants, v. PHYSICIANS HEALTHCHOICE, INC., Counter-defendant.
• Court: U.S. District Court — District of Minnesota

764 F. Supp. 1360

PHYSICIANS HEALTHCHOICE, INC., as assignee of the rights of certain members of the Automotive Employee Benefit Trust, Plaintiff, v. The TRUSTEES OF THE AUTOMOTIVE EMPLOYEE BENEFIT TRUST, including Alfred S. Brodie, Joseph Garbina, Gerald R. Kottschade, Florence Markert, and other presently unidentified "John Doe" individuals, Defendants.

The TRUSTEES OF THE AUTOMOTIVE EMPLOYEE BENEFIT TRUST, including Alfred S. Brodie, Joseph Garbina, Gerald R. Kottschade, Florence Markert, Counter-claimants, v. PHYSICIANS HEALTHCHOICE, INC., Counter-defendant.

Civ. No. 4-90-789.

United States District Court, D. Minnesota, Fourth Division.

May 30, 1991.

Keith J. Halleland, Popham, Haik, Schnobrich & Kaufman, David R. Strand, Rider, Bennett, Egan & Arundel, Minneapolis, Minn., for plaintiff.

Gaylord W. Swelbar, Robert T. Torgerson, Hanft, Fride, O'Brien, Harries, Swelbar & Burns, Duluth, Minn., for defendants.

MEMORANDUM AND ORDER

MacLAUGHLIN, District Judge.

This matter is before the Court on plaintiff's motion to dismiss defendants' counterclaim. The motion will be granted.

FACTS

In March of 1990 the trustees of the Automotive Employee Benefit Trust (the trust) terminated the employee benefit plan (the plan) which was providing medical benefits to more than 6,000 plan participants, as well as their dependents. At the time of the termination, plaintiff Physician's HealthChoice, Inc. claims that it was owed $1,252,000 for medical services provided to the plan's participants. By September 1, 1990, the alleged liability had risen to $1.6 million.

Following the plan's termination, a number of the plan participants assigned their claims under ERISA against the trustees of the plan to plaintiff PHC. PHC now brings the present action as assignee of these claims against certain plan trustees to recover damages on behalf of the plan caused by the defendants' alleged mismanagement and breaches of fiduciary duty.

In their amended answer, the trustees assert a counterclaim against PHC for contribution or indemnity, alleging that PHC is responsible as a fiduciary for losses caused by its own mismanagement. Plaintiff concedes for purposes of this motion that it is a "fiduciary," but moves to dismiss defendant's counterclaim for contribution and indemnity for failure to state a claim under ERISA.

DISCUSSION

In reviewing a motion to dismiss for failure to state a claim the Court presumes all factual allegations to be true and all reasonable inferences from those allegations are construed in favor of the non-moving party. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Palmer v. Tracor, Inc., 856 F.2d 1131, 1132 (8th Cir.1988). The appropriate inquiry is not whether plaintiff will ultimately prevail but whether he will be allowed to introduce evidence to support his claims. Scheuer, 416 U.S. at 236, 94 S.Ct. at 1686. Because dismissal on the pleadings is an extreme remedy it is not favored by the courts and is employed only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957) (footnote omitted). Robinson v. MFA Mutual Insurance Co., 629 F.2d 497, 500 (8th Cir. 1980). See also Palmer, 856 F.2d at 1132.

I. Whether Defendants' Counterclaim States a Claim Under ERISA

Congress has provided that ERISA "shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan...." 29 U.S.C. § 1144(a). The Supreme Court has observed that "the express preemption provisions of ERISA are deliberately expansive, and designed to `establish pension plan regulation as exclusively a federal concern.'" Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987), quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed.2d 402 (1981). The Court has previously noted that the cases interpreting ERISA's preemption clauses and the legislative history of the statute suggest the broad scope of preemption. Minnesota Chamber of Commerce & Industry v. Hatch, 672 F.Supp. 393, 397 (D.Minn.1987).

In view of the exclusiveness of the ERISA regulatory scheme, the Court must confine itself to the express terms of ERISA and its surrounding body of common law to determine the validity of defendants' counterclaim for contribution or indemnity.

II. Whether ERISA Contains a Right of Contribution or Indemnity

The liability of a fiduciary for losses suffered by a plan because of the fiduciary's breach of duty are governed by 29 U.S.C. § 1109(a) which provides:

Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.

(Emphasis added.)

Defendants rely upon the last clause of the above-quoted section as the source for a right of contribution. Defendants argue that contribution and indemnity constitute forms of "equitable or remedial relief" which are within the Court's power pursuant to this section. Defendants rely upon Northwest Airlines, Inc. v. Transport Workers Union of America, AFL-CIO, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981), in which the Supreme Court held that in determining whether a federal statute provides for a private right of action, such as a right of contribution, the Court considers "the language of the statute itself, its legislative history, the underlying purpose and structure of the statutory scheme, and the likelihood that Congress intended to supersede or to supplement existing state remedies." Id. at 91, 101 S.Ct. at 1580. In that case, the Court noted that neither the Equal Pay Act nor Title VII expressly created a right of contribution in favor of employers. Id. The Court found that this omission, although significant, was not dispositive if the language of the statutes indicated that they were enacted "for the special benefit of a class of which petitioner is a member." Id. at 92, 101 S.Ct. at 1581. The Court found that employers were not members of the class for which these statutes were enacted inasmuch as both statutes were "expressly directed against employers; Congress intended in these statutes to regulate their conduct for the benefit of employees." Id. The Court also found that the comprehensiveness of the statutes counseled against a right of contribution. In addition, the Court found no indication in the legislative history of any intention to provide for a right of contribution.

Defendants argue that ERISA, unlike the Equal Pay Act or Title VII, was not intended solely to protect employees, but rather to "establish judicially enforceable standards to insure honest, faithful, and competent management of pension and welfare funds," and "reduce substantially the potentialities for abuse" by fiduciaries. Massachusetts Mutual Life Insurance, Inc. v. Russell, 473 U.S. 134, 140 n. 8, 105 S.Ct. 3085, 3089 n. 8, 87 L.Ed.2d 96 (1985), quoting legislative history. According to defendants, because Congress in enacting ERISA was concerned about the actions of fiduciaries, the Court should interpret ERISA as providing for a right of contribution among fiduciaries.

Defendants rely upon Free v. Briody, 732 F.2d 1331 (7th Cir.1984) in which the United States Court of Appeals for the Seventh Circuit held that ERISA provided for a right of contribution among fiduciaries. In Free, the court applied the analysis set forth in Northwest Airlines and concluded that ERISA intended to protect trustees from "being ruined by the actions of their cofiduciaries, both because the language of ERISA provides protection for co-trustees and because Congress evidenced an intent to apply general trust principles to the trustee provisions of ERISA." Id. at 1337. The court noted that ERISA contained a provision which limited co-fiduciary liability: section 1105. This section provides:

(a) In addition to any liability which he may have under any other provision of this part, a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan in the following circumstances:

(1) if he participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other fiduciary, knowing such act or omission is a breach;

(2) if, by his failure to comply with section 1104(a)(1) of this title in the administration of his specific responsibilities which give rise to his status as a fiduciary, he has enabled such other fiduciary to commit a breach; or

(3) if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach.

29 U.S.C. § 1105. The court noted that section 1105 not only limited the liability for a co-trustee's breach of fiduciary duty to those circumstances set forth at section 1105(a), but also did so by allowing trustees to allocate responsibilities for various functions and avoid liability for breaches of allocated duties. See 29 U.S.C. § 1105(b)(1)(B). The court held that Congress did not intend trustees to act as insurers of the actions of co-trustees. The court found that a co-trustee who has been required to make good a loss to a plan can recoup his loss from a more culpable co-trustee pursuant to section 1105. The court found that this right was contained in the provision in section 1109, quoted supra, providing for "such other equitable or remedial relief as the court may deem appropriate. ..." The...