Secretary of Labor v. Fitzsimmons

• Decision Date: 30 October 1986
• Docket Number: 84-2863 and 84-2864,Nos. 84-2827,s. 84-2827
• Citation: Secretary of Labor v. Fitzsimmons, 805 F.2d 682 (7th Cir. 1986)
• Parties: , 6 Fed.R.Serv.3d 155, 7 Employee Benefits Ca 2442 SECRETARY OF LABOR, Plaintiff-Appellant, v. Frank E. FITZSIMMONS, et al., Defendants-Appellees. David DUTCHAK, et al., Plaintiffs-Appellees, and Secretary of Labor, Intervening Plaintiff-Appellant, v. INTERNATIONAL BROTHERHOOD OF TEAMSTERS, etc., et al., Defendants-Appellees. Chester SULLIVAN, et al., Plaintiffs-Appellees, and Secretary of Labor, Intervening Plaintiff-Appellant, v. ESTATE OF Frank E. FITZSIMMONS, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 682

805 F.2d 682

55 USLW 2270, 6 Fed.R.Serv.3d 155,

7 Employee Benefits Ca 2442

SECRETARY OF LABOR, Plaintiff-Appellant, v. Frank E. FITZSIMMONS, et al., Defendants-Appellees.

David DUTCHAK, et al., Plaintiffs-Appellees, and Secretary of Labor, Intervening Plaintiff-Appellant, v. INTERNATIONAL BROTHERHOOD OF TEAMSTERS, etc., et al.,

Defendants-Appellees.

Chester SULLIVAN, et al., Plaintiffs-Appellees, and Secretary of Labor, Intervening Plaintiff-Appellant, v. ESTATE OF Frank E. FITZSIMMONS, et al., Defendants-Appellees.

Nos. 84-2827, 84-2863 and 84-2864.

United States Court of Appeals Seventh Circuit.

Argued June 9, 1986.

Decided Oct. 30, 1986. ^*

As Amended Dec. 22, 1986.

Steven J. Mandel, U.S. Dept. of Labor, Washington, D.C., (Allen H. Feldman, on brief), for plaintiff-appellant.

Robert J. Higgins, Dickstein, Shapiro & Morin, Washington, D.C., Edmund W. Kitch, School of Law, Univ. of Virginia, Charlottesville, Va., for defendants-appellees.

Before BAUER, Chief Judge, CUMMINGS, CUDAHY, POSNER, COFFEY, EASTERBROOK and RIPPLE, Circuit Judges.

COFFEY, Circuit Judge.

In Donovan v. Fitzsimmons, 778 F.2d 298 (7th Cir.1985), a panel of this court affirmed an order of the district court approving the settlement of actions brought by participants in the Central States Southeast and Southwest Areas Pension Fund (CSPF) against the various named defendants alleging that the benefit eligibility rules for pension payments were arbitrary, unreasonably restrictive and further, that the trustees had mismanaged the Funds' assets. We granted the Secretary of Labor's petition for rehearing en banc to consider whether the district court properly dismissed the Secretary's action on the grounds that his claim was barred by the doctrine of res judicata. We vacate the order of the district court and remand this case for further consideration in light of our holding herein.

I. BACKGROUND

This case has a complex history dating back to the middle 1970's when aggrieved members of the International Brotherhood of Teamsters Union initially filed various actions against their pension fund known as the Central States Pension Fund, the CSPF's former trustees and the IBT. The initial suit was a class action, Dutchak, et al. v. International Brotherhood of Teamsters, et al. ("Dutchak"), filed on behalf of individual Teamster members against the IBT and the CSPF in 1976 alleging that the benefit eligibility rules for pension payments were arbitrary and unreasonably restrictive and further that the trustees had mismanaged the Fund's assets. In the aftermath of the Department of Labor investigation concerning the alleged mismanagement of the Central States Pension Fund, the DOL filed a separate action against the former trustees of the CSPF, Donovan v. Fitzsimmons, et al., in 1975 and alleged that the former trustees had mismanaged the pension fund, in violation of 29 U.S.C. Sec. 1104. ¹ The DOL claimed the alleged mismanagement caused losses of between $50 to $70 million due to imprudent loans and improper investments in various real estate syndicates, hotels, including gambling casinos in Las Vegas, and other businesses. ² After the DOL filed the Donovan action, the named plaintiffs in Dutchak requested leave to file an amended complaint with the court essentially incorporating most of the claimed fiduciary duty violations under ERISA set forth in the Donovan complaint; however, the district court did not rule on this motion. Thereafter, in 1979 the attorneys representing the plaintiffs in Dutchak filed a class action, Sullivan, et al. v. Fitzsimmons, et al., incorporating all of the allegations set forth in the previous Donovan and Dutchak complaints. In 1979, the court ordered the three cases consolidated for purposes of discovery.

On October 16, 1981, a proposed settlement was reached between the private plaintiffs in the Dutchak and Sullivan actions and the Central States Pension Fund and Teamsters Union resolving the benefit claims. According to the terms of the proposed settlement the CSPF agreed to substantially liberalize the rules governing the eligibility for pension benefits. The plaintiffs and the CSPF projected that the liberalized rules governing eligibility for pension benefits would require approximately $140 million be set aside for the additional participants who might now qualify for pension benefits under the proposed settlement. The proposed settlement between the private plaintiffs and the Central States Pension Fund also conditioned the final settlement upon the resolution of the asset mismanagement claims and the dismissal of the DOL's Donovan action. During the period of these settlement negotiations between the named plaintiffs and the CSPF and IBT, the Department of Labor was not informed that these parties were discussing settlement of the Secretary's action in Donovan, and thus the Secretary had no knowledge of, and was not a party to, any of these negotiations. In fact, as counsel for the named plaintiffs disclosed during the October 21, 1981 hearing, the CSPF directed the plaintiffs not to discuss the settlement negotiations with the Secretary of Labor: "Now as a condition of the negotiations, we were required [by the CSPF] not to communicate with the Department of Labor about this activity or the contents...." ³ (Emphasis added). Subsequently, in November 1981, after the Secretary of Labor became aware of this highly unusual secrecy requirement as pertaining to him, the DOL moved to intervene as a plaintiff in the Sullivan and Dutchak class actions, pursuant to its right of intervention under 29 U.S.C. Sec. 1132(h). ⁴ The Court granted the Secretary's motion to intervene for the limited purpose of objecting to the proposed settlement and participating in any settlement hearings.

On June 13, 1984 the final settlement agreement between the plaintiffs and the defendants was filed with the court, incorporating an Insurance Settlement Agreement providing that the CSPF's former trustee's insurance companies, Aetna and Lloyds of London, would pay $2 million to the CSPF in settlement of the asset mismanagement claims against the former trustees. The insurance companies agreed to pay the $2 million only if the former trustees agreed to release the respective insurance companies from any further liability ⁵ (Department of Labor's Appendix at 189-90), and settlement was also conditioned on the discharge from liability of the defendants in each action.

Between the time that the DOL intervened in the Sullivan and Dutchak action and the filing of the settlement agreement between the private plaintiffs and the defendants in June 1984, the Secretary did participate in the class actions in a very limited manner only as to the filing of memoranda with the court urging that the class not be certified since the named plaintiffs could not properly and adequately represent the asset mismanagement group's interests. In conjunction therewith and at the suggestion of the court, the Secretary of Labor filed a memorandum with the court addressing the nature and scope of the notice to be provided to the proposed class. In the spring of 1984, a notice was sent to all proposed class members (the benefit group and the asset mismanagement group) disclosing the terms of the settlement. The district court also permitted the Secretary of Labor to send an accompanying letter to the class urging rejection of the settlement.

On June 13, 1984, the district court held a hearing to review the terms of the settlement. During this hearing, the Secretary of Labor objected to the settlement of the asset mismanagement claims, contending that the anticipated recovery was wholly inadequate in light of the number and dollar amount of the claims against the former trustees and also that the settlement agreement failed to allow recovery from the personal assets of the former trustees. Some two and one-half months later, on August 27, 1984, the court issued its written findings and certified as one class "all persons on whose behalf a contribution has been made or required to be made" for purposes of approval of the settlement. This class consisted of all the benefit and asset mismanagement unnamed plaintiffs. The Department of Labor has continually contested the ability, authority and propriety of the named plaintiffs to represent both the benefit and asset mismanagement unnamed plaintiffs; however, the court disagreed and found that the unnamed plaintiffs were adequately represented under Fed.R.Civ.P. 23(a)(4) which requires that "the representative parties ... fairly and adequately protect the interests of the class." In reaching its conclusion that Fed.R.Civ.P. 23(a)(4) was satisfied, the court determined that the DOL had adequately represented the interest of those members of the class who sought a larger recovery for the asset mismanagement claims, and also that the defendant CSPF had adequately represented the interests of those members of the class who sought to limit the liberalization of eligibility rules governing benefits.

The court further determined that since the settlement had been presented to the court as a package, the entire settlement "must stand or fall as a package." The court after reviewing the settlement concluded that the settlement was fair and reasonable. To support its decision the court found that all parties had an opportunity to litigate the contested issues and that the $2 million to be received from the insurance companies was the largest amount attainable under the circumstances, ⁶ and that the cost of further litigation in this case outweighed the benefits to be gained. In approving the settlement, the court also ruled that there was no reason to believe that any of the former trustees were likely to commit ERISA violations in the future since they were not now serving on the CSPF board and a consent decree had been entered providing for special counsel to overlook future management of the Fund. ⁷ ...