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Baum v. Nolan

decided: August 12, 1988.

THOMAS J. BAUM, JOHN J. O'NEILL, STEVEN A. WOLEBEN, DAVID J. MILBACK, BOB HOLMES, RUSSELL SALVO, THOMAS J. SAURO, TIMOTHY M. BISHOP, THADDEUS C. RUTHERFORD, CHARLES B. HEPP, ERNEST C. BREAULT, DONALD I. STOETZEL, BERNHARD C. COLLATZ, JOSEPH R. ARMSTRONG, JAMES C. PERKINS, HAROLD J. LEGNARD, SAM P. BOYIAN, DAVID S. ROSS AND JOSEPH READY, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED AS PARTICIPANTS IN THE NEW YORK STATE TEAMSTERS CONFERENCE PENSION AND RETIREMENT FUND, PLAINTIFFS-APPELLANTS,
v.
T. EDWARD NOLAN, CURTIS GUNDERSEN, RICHARD MULLER, ROCCO F. DEPERNO, VICTOR MOUSSEAU, PAUL E. BUSH, JACK CANZONERI AND VICTOR OLIVADOTTI, BOTH INDIVIDUALLY AND AS TRUSTEES OF THE NEW YORK STATE TEAMSTERS CONFERENCE PENSION AND RETIREMENT FUND, NEW YORK STATE TEAMSTERS CONFERENCE PENSION AND RETIREMENT FUND AND "JOHN DOE" AND JANE DOE", THE NAMES BEING FICTITIOUS BUT INTENDING TO BE TRUSTEES OF THE NEW YORK STATE TEAMSTERS CONFERENCE PENSION AND RETIREMENT FUND, AT THE TIMES SET FORTH IN THE COMPLAINT, DEFENDANTS-APPELLEES



Appeal from a judgment of the United States District Court for the Northern District of New York, McAvoy, J., granting summary judgment for defendant trustees on plaintiffs' claims of breach of duty under ERISA. We hold that acts occurring before the effective date of ERISA are not actionable under the ERISA standard of fiduciary care even if the acts give rise to consequences after ERISA's effective date. We also hold that the "partial termination" of the pension plan within meaning of I.R.C. § 411(d)(3) did not impose on plan trustees a fiduciary obligation to terminate the plan itself. Affirmed.

Lumbard, Meskill, and Winter, Circuit Judges.

Author: Meskill

In this appeal, we are called upon to decide whether the United States District Court for the Northern District of New York, McAvoy, J., correctly granted summary judgment for the defendants, Trustees of the New York State Teamsters Conference Pension and Retirement Fund (the Teamsters Fund), a multi-employer pension fund, on claims that they committed breaches of fiduciary duty actionable under the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 1985 & Supp. 1988). The plaintiffs-appellants are Teamster participants in the Teamsters Fund (the Participants). According to the Participants' complaint, the defendants- appellees Trustees of the Teamsters Fund (the Trustees) breached their fiduciary duty in 1973 when they agreed to merge the Teamsters Fund with the Brewery Workers Pension Fund (the Brewery Fund) without making adequate inquiry into the financial soundness of the Brewery Fund. The Participants also contend that the Trustees have a fiduciary obligation to cease making payments to Brewery Fund beneficiaries and to terminate or segregate the Brewery Fund from the Teamsters Fund because the former underwent a "partial termination" in 1976, before the merger was finally consummated. The Participants argue that these actions are subject to the fiduciary duty provisions of ERISA. On appeal, they add that the declaratory and injunctive relief they seek is appropriate even though New York state courts have ordered the Trustees to comply with the merger agreement and pay benefits to beneficiaries of the Brewery Fund.

The Trustees moved pursuant to Fed. R. Civ. P 12(b)(6) to dismiss the complaint for failure to state a claim. The district court converted the Trustees' motion to one for summary judgment under Fed. R. Civ. P. 56, see Fed. R. Civ. P 12(b), and dismissed the Participants' complaint, The Participants appeal. For the reasons that follow, we affirm.

BACKGROUND

The facts underlying the instant litigation are not in dispute. In August 1973, the Brewery Fund and the Teamsters Fund entered into an agreement to merge. Shortly thereafter, however, one of the largest breweries in the New York area announced that it would shut down. Faced with the loss of a significant portion of brewery employer contributions without a corresponding reduction in pension benefit liability to Brewery Fund beneficiaries, the Teamsters Fund repudiated the agreement in February 1974. The Brewery Fund sued in New York Supreme Court to compel specific performance The Supreme Court held that under New York law, "chang[ed] economic conditions" did not excuse performance of the merger agreement, See J, App. 201-02. The court therefore granted summary judgment for the Brewery Fund, holding that the agreement was valid, binding and enforceable, and ordering specific performance on the part of the Teamsters Fund. Brewery Workers Pension Fund v. New York State Teamsters Conference Pension and Retirement Fund, No. 9997/74 (N.Y. Sup. Ct. Apr. 11, 1975), aff'd mem., 49 A.D.2d 755, 374 N.Y.S.2d 590 (2d Dep't 1975), leave to appeal denied, 38 N.Y.2d 709, 382 N.Y.S.2d 1028, 346 N.E.2d 558 (1976).

The merger agreement was conditioned on the Teamsters Fund obtaining a favorable determination from the Internal Revenue Service (IRS) on the tax qualification of the merged plan. In September 1976, the IRS District Director issued such a determination. See J. App. 208-09. Despite having obtained this ruling, the Teamsters Fund still did not go through with the merger. The Brewery Fund therefore moved for enforcement of the original New York Supreme Court decision. In an Order and Supplemental Judgment dated April 12, 1977, the Supreme Court granted the motion. The court declared the merger to be complete as of December 1, 1976, and held that all members of the Brewery Fund had become members of the Teamsters Fund as of the same date. In sweeping and unambiguous language, the court also directed the Teamsters Fund and its Trustees to

(a) accept all the assets and property of the [Brewery Fund] . . . ; (b) assume and pay all legal and proper obligations of the [Brewery Fund]; (c) pay all benefits due to: covered members already retired under the [Brewery Fund]; members in receipt of disability benefits; beneficiaries entitled to receive benefits under the [Brewery Fund]; and former members with vested rights not yet receiving benefits, but who become entitled to receive benefits in the future . . .

J. App. 205-06. The court also ordered that Brewery Fund assets be transferred to the Teamsters Fund. Id. at 206. Brewery Workers Pension Fund v. New York State Teamsters Conference Pension and Retirement Fund, No. 9997/74 (N.Y. Sup. Ct. Apr. 12, 1977), aff'd, 62 A.D.2d 1046, 404 N.Y.S.2d 158 (2d Dep't), motion for leave to appeal dismissed, 45 N.Y.2d 706, 408 N.Y.S.2d 1025, 380 N.E.2d 338 (1978).

In addition to resisting the Brewery Fund's efforts to force specific performance of the merger agreement, the Teamsters Fund took affirmative steps to avoid the agreement. The Teamsters Fund asked the Pension Benefit Guaranty Corporation (PBGC) to disapprove the merger under ERISA. The PBGC refused to do so, however. The District of Columbia Court of Appeals agreed with the PBGC that ERISA did not apply to the merger agreement because its "execution and repudiation . . . occurred prior to the [January 1, 1975] effective date of ERISA." New York State Teamsters Conference Pension and Retirement Fund v. Pension Benefit Guaranty Corp., 192 U.S. App. D.C. 344, 591 F.2d 953, 957 (D.C. Cir.) (Lumbard, J., sitting by designation), cert. denied, 444 U.S. 829, 62 L. Ed. 2d 37, 100 S. Ct. 56 (1979).

The Teamsters Fund also sought to have the United States Tax Court revoke the IRS District Director's favorable 1976 determination with respect to the tax qualification of the merged plan. We affirmed the tax court's conclusion that it lacked jurisdiction to grant the requested relief. Wenzel v. Commissioner of Internal Revenue, 707 F.2d 694, 696 (2d Cir. 1983).

Finally, the Trustees in 1983 asked the IRS for technical advice. They sought a finding that the Brewery Fund had lost its tax qualified status before the merger. Such a finding would vitiate a condition precedent to the merger and allow them to avoid it. The IRS District Director rejected this contention, however, in a determination letter issued in February 1985 and based on a detailed Technical Advice Memorandum issued by the District Director's Brooklyn Key District Office, see J. App. 38-47. The letter stated that a "partial termination" of the Brewery Fund had occurred before the merger was consummated in 1976, but that this event did not affect the Brewery Fund's tax qualification. See id. at 48-49.

In 1977, employees covered by the former Teamsters Fund sued both funds to enjoin the merger. The district court dismissed the complaint, however, holding that plaintiffs' allegations of ERISA violations failed to state a claim. Cicatello v. Brewery Workers Pension Fund, 434 F. Supp. 950, 958 (W.D.N.Y. 1977), aff'd mem., 578 F.2d 1366 (2d Cir. 1978).

Against this background, the Participants commenced the instant lawsuit. They asserted federal jurisdiction under ERISA, claiming that the defendant Trustees had breached and were continuing to breach their fiduciary responsibilities. The Participants identified three interrelated but purportedly distinct breaches of duty. First, they contended that the Trustees had failed to make proper inquiries into the financial soundness of the Brewery Fund before entering into the agreement to merge in 1973. Second, they contended that the Trustees were dissipating Teamsters Fund assets to pay Brewery Fund benefits, an action rendered improper by the underlying impropriety of the merger agreement itself. Third, they contended that the Trustees had an ...


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