violate section 406(b)(2). For the reasons that follow, the Court dismisses that portion of the Seventh Claim for Relief that alleges a violation of section 406(b)(2), but finds that plaintiffs' Sixth Claim for Relief states a valid cause of action for violation of section 406(b)(2).
Section 406(b)(2) provides that a fiduciary shall not "in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries." 29 U.S.C. § 1106(b)(2). The Second Circuit has read this section narrowly, holding that a transaction between the plan and a party having an adverse interest is required. See Donovan v. Bierwirth, 680 F.2d 263, 270 (2d Cir.), cert. denied, 459 U.S. 1069
, 74 L. Ed. 2d 631, 103 S. Ct. 488 (1982). "For the provisions of 29 U.S.C. § 1106 to apply, there must be a transaction involving the monies, property, or other assets of the fund." Amato v. Western Union Int'l, Inc., 596 F. Supp. 963, 969 (S.D.N.Y. 1984) (quoting Sutton v. Weirton Steel Div. of Nat'l Steel Corp., 567 F. Supp. 1184, 1199 (N.D.W.Va. 1983), aff'd, 724 F.2d 406 (4th Cir. 1983), cert. denied, 467 U.S. 1205, 81 L. Ed. 2d 345, 104 S. Ct. 2387 (1984)), aff'd in part and rev'd in part on other grounds, 773 F.2d 1402 (2d Cir. 1985), cert. dismissed, 474 U.S. 1113 (1986).
The Court finds that plaintiffs' Sixth Claim for Relief states a valid claim for violation of section 406(b)(2). Clearly, Fund employers are parties with interests adverse to those of plan Members. Indeed, the employers' interests lie in minimizing their obligations to the Fund, whereas the Fund's interest is in collecting all contributions owed. Moreover, the employers' obligation to contribute to the Fund constitutes a transaction involving Fund assets. By forbearing from collecting monies owed the Fund in order to protect the financial viability of employers, or in return for other consideration in collective bargaining, the Trustee Defendants acted on behalf of the employers, and to the detriment of the Fund. Accordingly, plaintiffs Sixth Claim for Relief is valid.
The Court finds, however, that plaintiffs' Seventh Claim for Relief fails to allege a transaction between the plan and a party having an adverse interest. In fact, plaintiffs concede that this claim is, "concededly, more difficult and would appear to be precluded by Bierwirth." Opp. Papers at 26. Accordingly, that portion of the Seventh Claim for Relief that alleges a violation of section 406(b)(2) is dismissed.
C. Defendant Faggen
Defendant Faggen moves to dismiss those portions of the complaint that state a cause of action against him, namely the Second Claim for Relief, which alleges that "by their acts and omissions . . . the Trustees and defendant Harold Faggen violated [ERISA § 404(a)(1)(B)]," see Complaint, P 59, and the Eighth Claim for Relief, which alleges that "if defendant Harold Faggen was not a fiduciary of the Pension Fund, he knowingly participated in each of the breaches of fiduciary duty set forth in the Second, Sixth and Seventh Claims for Relief," see Complaint, P 70.
Accordingly, the Court must determine (1) whether Faggen was a fiduciary; or, if not, then (2) whether Faggen knowingly participated in the breaches of fiduciary duty alleged in the complaint.
1. Claim for Breach of Fiduciary Duty
ERISA § 3(21)(A) defines a "fiduciary" as a person who:
(i) . . . exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) . . . renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) . . . has any discretionary authority or discretionary responsibility in the administration of such plan.
29 U.S.C. § 1002(21)(A). On June 25, 1975, the Department of Labor issued an interpretative bulletin further defining under what circumstances a consultant is considered to be a fiduciary under ERISA. See 29 C.F.R. § 2509.75-5, D-1.
Pursuant to this bulletin, a consultant who renders services to an employee benefit plan (other than an investment adviser to the plan) is not a fiduciary solely by virtue of rendering such services, absent a showing that the consultant exercises discretionary authority or discretionary control over the plan's management, administration or assets, or renders investment advice for a fee. Id. Thus, a consultant who exercises no authority over a plan other than in the exercise of his "usual professional functions" is not a fiduciary. Mertens v. Hewitt Assocs., 948 F.2d 607, 610 (9th Cir. 1991). See also Greenblatt v. Prescription Plan Servs. Corp., 783 F. Supp. 814, 820 (S.D.N.Y. 1992) ("One who exercises actual control over disposition of assets is a fiduciary under ERISA; one who engages in purely 'ministerial' functions is not").
In this case, the complaint alleges nothing more than that "defendant Faggen, while engaged as a consultant to the Pension Fund, consulted with the Trustees and the Administrator in all facets of their administration of the Pension Fund." Complaint, P 23. In fact, the complaint fails to allege either that Faggen exercised any degree of authority or discretionary responsibility over the plan, or that he rendered investment advice for a fee. Accordingly, the Court finds that plaintiffs have failed to state a claim against defendant Faggen for breach of fiduciary duty.
2. Claim for Knowing Participation in Breach of Fiduciary Duty
Plaintiffs contend that, if Faggen was not a fiduciary, then he knowingly participated in the breaches of fiduciary duty set forth in the Second, Sixth and Seventh Claims for Relief. Complaint, P 70. The Second Circuit has held that "parties who knowingly participate in fiduciary breaches may be liable under ERISA to the same extent as the fiduciaries." Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d at 280 (quoting Lowen v. Tower Asset Management, Inc., 829 F.2d 1209, 1220 (2d Cir. 1987)).
The elements of a cause of action for knowing participation in a breach of fiduciary duty include: (1) breach by a fiduciary of a duty owed to plaintiff; (2) defendant's knowing participation in the breach; and (3) damages. 974 F.2d at 281-282. As set forth, supra, plaintiffs have adequately stated a cause of action against the Trustee Defendants for breach of their fidiciary duties. Accordingly, the Court next must determine whether plaintiffs have adequately alleged knowledge and participation on the part of defendant Faggen.
The knowledge element of this cause of action can be broken down into two elements, namely (1) knowledge of the primary violator's status as a fiduciary; and (2) knowledge that the primary's conduct contravenes a fiduciary duty. Id. at 282-283. Although Faggen concedes that he was aware that the Trustee Defendants with whom he consulted were fiduciaries, see Reply Memorandum In Support of Defendant Harold Faggen's Motion to Dismiss, dated April 19, 1993, at 6, he contends that plaintiffs have failed to allege that he was aware that the Trustee Defendants engaged in breaches of fiduciary duty.
The Court finds, however, that plaintiffs' claims are sufficient to withstand Faggen's motion to dismiss. Plaintiffs allege that Faggen "consulted with the Trustees and the Administrator in all facets of their administration of the Pension Fund." Complaint, P 23. The complaint alleges further that "at all times that defendant Harold Faggen was a consultant to the Pension Fund, the Trustees, or certain of them, solicited his advice and relied thereon." Complaint, P 69. Such allegations are sufficient to give Faggen fair notice of plaintiffs' claims and the grounds upon which they rest.
Faggen next contends that plaintiffs have failed to allege that he participated in the Trustee Defendants' breaches of their fiduciary duties. "One participates in a fiduciary's breach if he or she affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables it to proceed." Id. at 284. The Eighth Claim for Relief alleges that Faggen knowingly participated in the Second, Sixth and Seventh Claims for Relief. The Court thus must look to each of those causes of action in turn.
The Second Claim for Relief alleges that defendant Faggen, as well as the Trustee Defendants (1) caused the establishment of levels of pension benefits that he knew or should have known were excessive; (2) failed to take appropriate measures to alleviate the problems caused by the levels of pension benefits as in effect from time to time; (3) failed to monitor properly the Fund's financial condition; (4) failed to inform Members of problems concerning the Fund's financial condition; (5) failed to inform Members of the potential consequences of increasing the Fund's levels of pension benefits; (6) lied to Members about the financial condition of the Fund; and (7) failed to engage the services of appropriate professional consultants, or, if such professional consultants were retained, failed to utilize their services or follow their advice. Complaint, P 59. Moreover, the Sixth Claim for Relief alleges that the Trustee Defendants failed or refused to collect monies from employers. Complaint, P 67. Such allegations are sufficient under Federal Rule of Civil Procedure 8.
Nevertheless, the Court finds that plaintiffs' claims are barred to the extent they seek money damages against defendant Faggen. The United States Supreme Court recently has held that ERISA does not authorize suits for money damages against nonfiduciaries who knowingly participate in a fiduciary's breach of a fiduciary duty. Mertens v. Hewitt Assocs., 113 S. Ct. at 2072. Accordingly, plaintiffs' causes of action against defendant Faggen are dismissed to the extent that they allege claims for damages.
For the reasons set forth above, plaintiffs' motion, pursuant to Rule 23(b)(1), for class certification is granted. The class is hereby defined as "all persons, other than defendants, who are participants in or beneficiaries of the Pension Fund of Local One of the Amalgamated Lithographers of America." The Trustee Defendants' motion to dismiss the Second, Third and Seventh Claims for Relief, on the ground that they fail to state a cause of action, is denied. The Trustee Defendants' motion to dismiss plaintiffs' Second, Third, Sixth and Seventh Claims for Relief, on the ground that they are time-barred under ERISA's six year statute of limitations, is granted to the extent that plaintiffs allege a cause of action that took place prior to May 27, 1986. Plaintiffs are given leave to serve an amended complaint on or before December 24, 1993, alleging causes of action for fraud against each of the defendants individually. The Trustee Defendants' motion to dismiss the First Claim for Relief is granted; to dismiss the Sixth Claim for Relief, to the extent it alleges a violation of section 406(b)(2), is denied; and to dismiss that portion of the Seventh Claim for Relief that alleges a violation of section 406(b)(2) is granted. Defendant Faggen's motion to dismiss the Second and Eighth Claims for Relief for failure to state a claim is denied. However, Faggen's motion to dismiss the Second and Eighth Claims for Relief is granted to the extent that plaintiffs' causes of action against him seek monetary damages. The parties are hereby directed to appear before this Court for a status conference on Wednesday, January 5, 1994, at 10:30 a.m.
SHIRLEY WOHL KRAM
UNITED STATES DISTRICT JUDGE
Dated: New York, New York
November 30, 1993