Sinai Hosp. of Baltimore, Inc. v. National Ben. Fund for Hosp. & Health Care Employees

• Decision Date: 15 December 1982
• Docket Number: No. 81-1837,81-1837
• Citation: 697 F.2d 562
• Parties: 112 L.R.R.M. (BNA) 2001, 95 Lab.Cas. P 13,924, 3 Employee Benefits Ca 2417 SINAI HOSPITAL OF BALTIMORE, INC.; The Johns Hopkins Hospital; Maryland General Hospital; Greater Baltimore Medical Center; The Lutheran Hospital of Maryland, Appellants, v. NATIONAL BENEFIT FUND FOR HOSPITAL & HEALTH CARE EMPLOYEES, Henry Nicholas, Fund Trustee, et al., Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 562

697 F.2d 562

112 L.R.R.M. (BNA) 2001, 95 Lab.Cas. P 13,924,

3 Employee Benefits Ca 2417

SINAI HOSPITAL OF BALTIMORE, INC.; The Johns Hopkins Hospital; Maryland General Hospital; Greater Baltimore Medical Center; The Lutheran Hospital of Maryland, Appellants, v. NATIONAL BENEFIT FUND FOR HOSPITAL & HEALTH CARE EMPLOYEES Henry Nicholas, Fund Trustee, et al., Appellees.

No. 81-1837.

United States Court of Appeals, Fourth Circuit.

Argued Feb. 2, 1982.

Decided Dec. 15, 1982.

Jeffrey P. Ayers, Baltimore, Md. (Lawrence S. Wescott, Peter E. Keith, Venable, Baetjer & Howard, Baltimore, Md., on brief), for appellants The John Hopkins Hosp., Maryland Gen. Hosp. and Greater Baltimore Medical Center.

Leonard E. Cohen, Baltimore, Md. (Jeffrey Rockman, Frank, Bernstein, Conaway & Goldman, Baltimore, Md., on brief), for appellant Sinai Hosp. of Baltimore, Inc.

Robert S. Hillman, Russell H. Gardner, Wolf, Pokempner & Hillman, Baltimore, Md., on brief, for appellant The Lutheran Hosp. of Maryland.

Stephen M. Silvestri, Baltimore, Md. (Benjamin R. Goertemiller, Semmes, Bowen & Semmes, Baltimore, Md., Donald E. Klein, Sipser, Weinstock, Harper, Dorn & Leibowitz, New York City, on brief), for appellees.

Before RUSSELL, HALL and SPROUSE, Circuit Judges.

SPROUSE, Circuit Judge:

The appellants are five Baltimore, Maryland hospitals (the Hospitals). The appellees are the trust fund and its trustees ¹ (the Fund) who administer a health and welfare benefits program for the Hospitals employees. The Hospitals contribute to the Fund pursuant to collective bargaining agreements with locals of the National Union of Hospital & Health Care Employees (the Union). The Fund is a national, multi-employer trust fund receiving contributions and providing benefits for approximately 91,000 employees of some 1,500 retail drug stores, hospitals and related health care institutions. The Fund was established by an "Agreement and Declaration of Trust" (Trust Agreement) in 1949, but most of the current contributing employers began participating in the Fund subsequent to that time. The Hospitals first began contributing in 1974. The Hospitals here appeal the district court's denial of an injunction restraining the Fund from increasing benefits to the Hospitals' employees effective September 1, 1981. ² The basis of the Hospitals' request for an injunction is that the Union agreed in collective bargaining that benefits should not be increased during the life of the 1980-1982 contract. In ruling against the Hospitals, the district court concluded that the trustees and the Fund were governed by the provisions of the Trust Agreement and could not be bound by contrary provisions of the subsequent collective bargaining contracts between the Hospitals and the Union. ³ We agree and affirm.

The Fund's operations are national in scope, and it is administered along district lines. Benefits are provided to employees according to three basic plans--plans "A", "B" and "C". Plan "A" provides the greatest benefits, plan "B" lesser benefits, and plan "C" the least. ⁴ The Trust Agreement calls for the trustees to determine both the eligibility of employees for benefits and the level of benefits. Benefits are paid from pooled contributions, but the amount of each employer's contribution affects the trustees' choice of plan for those employees.

There are currently 40 Fund trustees--one-half are appointed by the Union and one-half by the employers. The employer trustees vote as a unit and the union trustees vote as a unit. The majority of each of the two categories of trustees determines the vote of that unit. An arbitrator decides any issue where there is disagreement. The appellant Hospitals and the Union in the Baltimore area are represented on the Board of Trustees. Two Union-appointed trustees in their capacity as Union officials were also on the negotiating team which concluded the collective bargaining agreements involved in this action.

During the 1978-1980 contract period, the Hospitals contributed 10% of their covered payrolls to the Fund, and their employees were covered under plan "B". In bargaining for the 1980-1982 contract, the Hospitals secured concessions from the Union reducing the percentage contribution to the Fund, and an agreement that benefits would remain constant. The Sinai Hospital 1980-82 contract provided for an 8% of payroll contribution level to the Fund, and stated that the hospital's payments shall be for benefits "... as provided as of 12/1/80 under plan B. No change in the level or quality of such benefits shall be made without the express written approval of the Hospital." The contracts of the other four hospitals provided for 9% contributions and also required the maintenance of plan "B" benefits. The 1980 agreements were the first wherein the Hospitals and the union agreed to a specific level of benefits. Contributions to the Fund had been a major obstacle to settling a difficult economic impasse between the Hospitals and Union and the quoted language represents one of the agreements breaking the deadlock. The Fund and its trustees, however, were not parties to the negotiations nor were they consulted before the agreement was reached.

After receiving notice of the 1980 collective bargaining agreements, the Fund notified the Hospitals in February 1981 that the Fund could and would not be bound by the parties' agreements fixing the level of benefits, because this power was reserved to the Fund by law and by the Trust Agreement.

Because there was a surplus in the national "pool" of funds, the trustees in their May 1981 meeting decided to increase benefits on a nationwide basis for many covered employees, including the employees of the appellant Hospitals. Their benefits were increased by transferring them from the "B" plan to the "A" plan, effective September 1, 1981. ⁵ The Hospitals objected to this action, and after the trustees persisted in implementing the increase, the Hospitals filed their complaint and application for temporary injunction in the district court. In the complaint, the Hospitals charge that the Union represented to them that a 9% contribution level was necessary to maintain class "B" benefits; ⁶ and further charge that the change in benefits breached the collective bargaining contracts between the Union and the Hospitals, violated the provisions of section 302(c)(5) of the Labor Management Relations Act of 1947, as amended, (LMRA), ⁷ and constituted tortious interference with the contractual relationship between the Hospitals and the Union.

The Hospitals contend that: (1) The Fund is a party to the collective bargaining agreements between the Hospitals and the Union because the Fund accepted contributions knowing the contractual provisions; or, alternatively, that (2) the Fund is bound to honor the contractual provisions limiting the level of benefits because the Fund is a third party beneficiary of the contract; or that (3) the benefit increase violates several provisions of the LMRA, by permitting an outside party (the Fund) to alter collective bargaining agreements, and by permitting the Union to obtain more than what is provided for by collective bargaining agreements; and that the increase also violates Sec. 302(c)(5)'s specificity requirements.

Trustees of any trust, of course, can contract and will be bound by the terms of their contracts, as long as they act within the authority granted them by the trust instrument creating the trust. See generally A. Scott, Abridgement of the Law of Trusts, Secs. 186-192; Restatement (Second) of Trusts Secs. 186-192. To that extent, the Hospitals are correct in their intimation that contract law applies to employee funds as well as to a testamentary, charitable or any other trust. The basic law governing the actions of trustees, however, is the law of trusts. Moreover, the requirements of the common law of trusts relating to employee benefit trust funds have been made more exacting by congressional action. ⁸ The Supreme Court made this clear in NLRB v. Amax, 453 U.S. 322, 101 S.Ct. 2789, 69 L.Ed.2d 672 (1981).

The central issue in Amax was whether the employer-appointed trustee of a benefits trust fund was a management representative within the meaning of Sec. 8(b)(1)(B) of the LMRA. ⁹ The Court held that such a trustee was not a management representative but owed his complete fiduciary loyalty to the trust and its beneficiaries. Congress intended, said the Court, that the actions of trustees of union/management trust funds should be governed by the law of trusts, as tailored by Congress in enacting section 302(c)(5) and ERISA. The Court said:

Congress directed that union welfare funds be established as written formal trusts, and that the assets of the funds be "held in trust," and be administered "for the sole and exclusive benefit of the employees ... and their families and dependents...." 29 U.S.C. Sec. 186(c)(5). Where Congress uses terms that have accumulated settled meaning under either equity or the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.

NLRB v. Amax, 453 U.S. 322, 329, 101 S.Ct. 2789, 2794, 69 L.Ed.2d 672, 680 (1981).

....

And the legislative history of the LMRA confirms that Sec. 302(c)(5) was designed to reinforce, not to alter, the long established duties of a trustee.

Id., 453 U.S. at 330-331, 101 S.Ct. at 2794-2795, 69 L.Ed.2d at 681.

....

Whatever may have remained implicit in Congress' view of the employee benefit fund trustee under the Act became explicit when Congress passed the Employee Retirement Income Security Act of 1974 (ERISA). ERISA essentially codified the strict fiduciary standards that a Sec. 302(c)(5) trustee must meet.

....

Moreover, the fiduciary requirements of ERISA specifically insulate the trust from the employer's interest.

Id., 453 U.S. at 332-333, 101 S.Ct. at 2795-2796, 69 L.Ed.2d at 682.

....

In...