The opinion of the court was delivered by: MISHLER
MEMORANDUM OF DECISION AND ORDER
In February and March of 1979 the trustess of the Teamsters Local 282 Pension Trust Fund ("Trustees"), approved and disbursed a loan of $2 million to the Des Plaines Bankcorporation, Inc. ("Bankcorporation"), a bank holding company. The loan was secured by all the stock in the Des Plaines Bank ("Bank"), a wholly-owned subsidiary of Bankcorporation. Following the closing of the Bank by federal and state regulatory officials on March 14, 1981, two separate actions were brought against the Trustees alleging violation of fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1101, et seq. The Teamsters Local 282 Pension Trust Fund ("Fund") was joined as a defendant. These actions were consolidated for pre-trial matters and are referred to here as the Katsaros action (CV 81-2277) and the Donovan action (CV 82-1920). The Trustees and the Fund brought separate third-party actions against the named directors of Bankcorporation ("Directors").
The above consolidated actions were tried to the court without a jury pursuant to the memorandum of decision and order dated April 5, 1983. That decision also severed the third-party claims in both actions. The issues decided herein related only to the claims of the plaintiffs against the defendants and the defense interposed in the original actions (statute of limitations in the Katsaros action). The court finds:
I. The Loan to the Des Plaines Bankcorporation, Inc.
In the fiscal year ending February 28, 1979, the Fund had assets of approximately $58 million. Approximately 80% of such assets were invested in stocks, bonds and commercial paper. (Exh. C). Since approximately 1965, John Cody was a trustee of the Fund and also a trustee of the Welfare Fund and Annuity Fund of Local 282 of the International Brotherhood of Teamsters.
During all pertinent times herein, Cody was the Administrator of the Pension, Welfare and Annuity Funds.
Some time in the latter part of January 1978, Cody met Anthony G. Angelos, president and chairman of the board of directors of Bankcorporation at a social or union function. Angelos advised Cody that the Bank was seeking a loan. Cody suggested that Angelos have his lawyers make formal application to the Fund. On February 7, 1979, Jonathan T. Howe, a partner in the Chicago law firm of Jenner & Block, and a director and counsel to Bankcorporation, and counsel to the Bank, wrote to John Cody. The letter proposed a $2 million loan with interest at the Bank's floating prime rate, principal of $250,000 payable annually, the balance due four years from the date of the loan, to be secured by all the outstanding stock of the Bank. Howe requested the opportunity "to meet with you and your Board of Trustees at your forthcoming meeting on February 27, 1979." [Exh. 2A].
Cody met with Howe and Angelos on February 26. However, it was not until the next day, February 27, at the meeting of the Trustees, that Howe distributed financial statements of Bankcorporation and the Bank, i.e., consolidated financial statement of Bankcorporation and the Bank, as of December 31, 1978 (Exh. 5A), financial statement of the Bank as of December 31, 1978 (Exh. 5B), and a comparative schedule of assets of the Bank as of December 31, 1977, November 30, 1978 and December 31, 1978. (Exh. 5C). The three documents consisted of about 35 pages of figures and explanatory notes. The Trustees (other than Cody) who attended the meeting learned of the application for the first time at the meeting.
Harvey Colton, a certified public accountant employed by the Fund since the early 1950's, attended the meeting. Colton disclaimed sufficient training to express an opinion on the soundness of the loan and testified that no one on the Fund's staff had sufficient training to express an opinion on the loan. (Tr. at 117, 120).
Howe and Angelos made a two hour presentation after distributing the documents to the Trustees. Howe "touched on the highlights of the statement." (Tr. at 126). He showed that the Bank increased its assets of $68,000 in 1977 to $278,000 in 1978 and that "was the bottom line." (Tr. at 127 (Colton Testimony); see Tr. at 46-47 (Cody Testimony)). Thereupon, the Trustees present unanimously voted to approve the loan as modified as follows:
The terms of the loan would be for a payment of $125,000 of principal together with accrued interest on a semi-annual installments [sic] over a period of four years with a baloon [sic] payment at the end of the loan period. The amount of interest shall be at 1% over the prime rate of the Chase Manhattan Bank of New York with a floor of 10% computed on the basis of an actual 365 day year, until maturity. After maturity or default, the note shall bear interest at a rate of 2% over the prime rate or 11% per annum whichever is greater.
Exh. 6A at 10, minutes of Board of Trustees Meeting, Feb. 27, 1979.
Bankcorporation was to pay a loan organizatin fee of $10,000 plus all expenses incurred in making the loan. Angelos was to give his personal guarantee for the repayment of the loan,
to be secured by Angelos' interest in vacant land on Halstead Street in Chicago.
The Trustess present unanimously authorized Cody and defendant Ralph Guercia to make the loan. Cody and Guercia, accompanied by Herbert Ballin, the Fund's counsel, left the next day for Chicago. They retained one Sherman Carmell, Esq., a Chicago lawyer, as their local counsel, to advise them on the closing loan documents and the requirements of local law. During the period that Ballin and Carmell were reviewing the loan documents with Howe (representing Bankcorporation), Cody and Guercia visited the Bank in the company of Angelos and viewed the real estate on Halstead Street.
The loan closed on March 1, 1979 at the offices of Jenner & Block. The closing documents included a mortgage on Angelos' interest in the Halstead property as collateral for Angelos' guarantee and an opinion letter from Jenner & Block. The Trustees were not provided with a title report of the Halstead property. The opinion letter of counsel stated that there were no actions, suits or proceedings pending against the Bankcorporation or the Bank which would adversely affect the operations of the Bankcorporation or the Bank. The proceeds of the loan were disbursed as follows:
Central National Bank $1,032,426
South Side Bank 16,073
Water Tower Trust & Savings Bank 155,128
Anthony Angelos 288,373
Fund (loan organization fee) 10,000
At a regular meeting of the Trustees on March 20, 1979, the Trustees (with Nappi present), unanimously ratified all the terms and conditions of the loan agreement and the actions of Cody and Guercia with reference to the loan.
The Fund received the first semi-annual installment of principal and interest in the amount of $253,548 (principal in the amount of $125,000 and the balance as interest) on September 4, 1979 (due September 1, 1979). The Fund received two additional payments of principal and interest: $276,511 on February 28, 1980 (due March 1, 1980) and $228,374 on August 30, 1980 (due September 1, 1980).
The loan agreement obligated Bankcorporation to submit financial statements to the lender on the then current condition of the borrower (i.e., Bankcorporation). The statements submitted were, however, incomplete.
Although circulated among the Trustees, these statements were unaccompanied by any report or analysis. A cursory examination of the documents would have revealed that the Bank had discussed corrective measures with the Federal Deposit Insurance Corporation ("FDIC") relating to the financial soundness of the Bank. The Trustees had the right to additional information and the right to demand additional security under the terms of the loan agreement, as in effect during the period March 1, 1979 to March 1, 1981.
The Trustees' Fiduciary Duty Under Section 404(a)(1)(B) of ERISA
The obligation of trustees of an employee benefit plan in investing a plan's assets is analyzed under common law principles of trusts "bearing in mind the special nature and purpose of employee benefit plans." S.Rep. No. 1090, 93d Cong., 2d Sess. 302 (1974), discussed in Marshall v. Teamsters Local 282 Trust Fund, 458 F. Supp. 986, 990 (E.D.N.Y.1978). See also Donovan v. Daugherty, 550 F. Supp. 390, 403 (S.D.Ala.1982); Marshall v. Glass/Metal Ass'n and Glaziers and Glassworkers Pension Plan, 507 F. Supp. 378, 383 (D.Hawaii 1980); Note, Fiduciary Standards and the Prudent Man Rule Under the Employment Retirement Income Security Act of 1974, 88 Harv.L.Rev. 960, 966-67 (1975) [hereinafter Fiduciary Standards ].
Section 404(a)(1)(B) of ERISA, 29 U.S.C. § 1104(a)(1)(B), defines the obligation of a trustee in investing the plan's assets under the ...