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GRUBY v. BRADY

November 30, 1993

WILLIAM GRUBY, GEORGE HOFFAR, ANDREW ALAGNA, ANTHONY TAFARELLA, MICHAEL SALINARI, RICHARD GURLESKI, JAMES QUINN and JOSEPH CALDERONE, individually and on behalf of all others similarly situated, Plaintiffs,
v.
JAMES BRADY, JOSEPH CINCOTTA, JOHN CONLON, MARK COMPTON, WILLIAM CONLON, JOHN FITZGERALD, ANTHONY PARETTI, ANTHONY ROTOLI, RICHARD D'AMICO, EDWARD HANSEN, EUGENE BURKE, ANTHONY COGNATA, WILLIAM PIKE and JOHN DOES NOS. 1-99, individually and as trustees or former trustees of the Pension Fund of Local One of the Amalgamated Lithographers of America, THE ADMINISTRATOR OF THE PENSION FUND OF LOCAL ONE OF THE AMALGAMATED LITHOGRAPHERS OF AMERICA, THE PENSION FUND OF LOCAL ONE OF THE AMALGAMATED LITHOGRAPHERS OF AMERICA and HAROLD FAGGEN, Defendants.



The opinion of the court was delivered by: SHIRLEY WOHL KRAM

 SHIRLEY WOHL KRAM, U.S.D.J.

 Plaintiffs, who are participants in the Pension Fund of Local One of The Amalgamated Lithographers of America (the "Fund"), bring this action, alleging that the defendants violated various sections of the Employee Retirement Income Security Act of 1974 ("ERISA"). Plaintiffs seek certification of their case as a class action. Defendants James Brady, Joseph Cincotta, John Conlon, Mark Compton, William Conlon, John Fitzgerald. Anthony Paretti, Anthony Rotoli, Richard D'Amico, Edward Hansen, Eugene Burke, *fn1" Anthony Cognata and William Pike (collectively, the "Trustee Defendants") oppose class certification and also move, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss plaintiffs' First, Second, Third, Sixth and Seventh Claims for Relief. In addition, defendant Harold Faggen ("Faggen") opposes class action status and moves to dismiss those portions of the complaint that allege claims against him, namely the Second and Eighth Claims for Relief. *fn2" For the reasons set forth below, plaintiffs' motion for class certification is granted. The Trustee Defendants' motions are disposed of as follows: (1) the motion to dismiss the Second, Third and Seventh Claims for Relief, on the ground that they fail to state a claim, is denied; (2) the 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 causes of action that took place prior to May 27, 1986, but plaintiffs may serve an amended complaint alleging fraud on or before December 24, 1993; (3) the motion to dismiss the First Claim for Relief is granted; (4) the motion to dismiss the Sixth Claim for Relief, to the extent it alleges a violation of section 406(b)(2), is denied; and (5) the motion 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 granted to the extent that plaintiffs' causes of action against him seek monetary damages.

 BACKGROUND3

 The Fund is a pension trust established in 1947 and funded solely by employee contributions. Plaintiffs consist of both retired members of Local One of the Amalgamated Lithographers of America (the "Union"), who currently receive pension benefits from the Fund, and active Union members who contribute to the Fund (collectively, the "Members"). The Trustee Defendants are current and former trustees of the Fund. Defendant Faggen was, until December 31, 1991, a consultant to the Fund, and allegedly consulted with the Trustee Defendants and the Administrator of the Pension Fund of Local One of the Amalgamated Lithographers of America (the "Fund Administrator") on all aspects of the Fund's administration.

 Pursuant to the Fund's by-laws, employers of active Members are required to withhold five percent of each member's gross pay, and to remit such withholdings to the Fund. Retirement benefits are paid as a monthly annuity out of these contributions. In 1973, the Fund's benefit formula provided for a monthly pension benefit equal to 2.55 percent of a Member's aggregate lifetime contributions. This benefit amount subsequently was increased to 3 percent in 1980, 3.15 percent in 1983, and 3.3 percent in 1986.

 Plaintiffs allege that each of the increases in monthly pension benefits were proposed by those defendants who were then trustees of the Fund, and that the defendants assured the Members that each increase was prudent and financially responsible. According to plaintiffs, the Members relied on these assurances when they approved each increase by referendum vote. Nonetheless, plaintiffs now contend that the Trustee Defendants rendered these assurances either without the benefit of professional assistance, or contrary to professional advice. Plaintiffs argue further that

 
had the assistance of a qualified professional been sought, any such qualified professional would have counseled against the aforesaid increases in the monthly pension benefit because, inter alia: (i) the 1973 benefit formula was more generous than the Pension Fund could afford and any increase would have been imprudent; (ii) the number of members who were contributing to the Pension Fund was decreasing while the number of members who were receiving benefits was increasing; (iii) the return on principal which the Pension Fund was receiving was insufficient to support the various monthly pension benefit levels in effect from 1973 to the present; and (iv) absent a reduction in the monthly pension benefit level and/or a substantial increase in the return on principal, the Pension Fund's assets would be depleted in the near future and numerous members would lose some or all of their benefits.

 Complaint, P 35.

 The Fund's Financial Difficulties

 In December 1989, defendant Edward Hansen ("Hansen"), then chairman of the board of trustees of the Fund and president of the Union, sent a letter to the Members stating that the Fund was "solvent and secure." Plaintiffs contend that this statement was untrue and known to be untrue by Hansen, Faggen "and other defendants." Complaint, P 37.

 On July 17, 1991, the Members were notified for the first time that the Fund was experiencing financial difficulties. Thereafter, on January 14, 1992, defendant James Brady ("Brady"), Hansen's successor, informed the Members that the Fund's financial situation "was far more serious than originally anticipated" because of a decrease in the number of Members actively employed and an increase in the number of Members receiving pensions. Complaint, P 39. Members were told that the Fund had terminated defendant Faggen, effective December 31, 1991, and had retained the firm of Martin E. Segal Company to develop suggestions for ameliorating the Fund's financial difficulties.

 Thereafter, the board of trustees sent a report to the Members suggesting that they vote to either terminate the Fund or reduce the monthly pension benefits level from 3.3 percent to 1.85 percent of aggregate lifetime contributions. On March 28, 1992, the Members voted not to conduct a referendum on the options proposed by the board of trustees.

 The Complaint

 On May 27, 1992, plaintiffs brought this action, alleging that the failure of the Fund Administrator to provide documents and other information requested by plaintiffs constitutes a breach of the Fund Administrator's duties (First Claim for Relief). *fn4" Plaintiffs also allege that the Trustee Defendants and defendant Faggen (collectively, the "defendants") breached their fiduciary duties, set forth in ERISA § 404(a)(1)(B), by: (a) establishing excessive levels of pension benefits; (b) failing to alleviate any problems caused by these excessive benefit levels; (c) failing to properly monitor the Fund's financial condition; (d) failing to inform Members of the Fund's financial condition; (e) failing to inform Members of the potential consequences of increasing the Fund's benefit levels; (f) lying to Members about the Fund's financial condition; and (g) failing to engage the services of appropriate professional consultants, or failing to follow the advice of those professional consultants retained (Second Claim for Relief).

 The Third Claim for Relief alleges that the current trustees breached their fiduciary duties, set forth in ERISA §§ 404(a)(1)(A)(i) and (B), by failing to provide Members with adequate information upon which to base decisions as to (a) the appropriate level of pension benefits; and (b) an appropriate solution to the Fund's financial problems.

 Plaintiffs' Sixth Claim for Relief alleges that the Trustee Defendants violated ERISA §§ 404(a)(1)(A)(i) and 406(b)(2) by failing to collect from employers monies withheld from the gross pay of active Members, out of concern for the continued viability of the employers as Union members, and/or for consideration for Union concerns in future collective bargaining. The complaint also alleges that the Trustee Defendants violated ERISA §§ 404(a)(1)(A)(i), (ii), (B) and 406(b)(2) by increasing the level of pension benefits despite knowing that such increases were imprudent, and without informing the Members of the Fund's adverse financial circumstances, in order to assist themselves in being elected or re-elected as Union officers (Seventh Claim for Relief). The Eighth Claim for Relief alleges that, if defendant Faggen was not a fiduciary of the Fund, he knowingly participated in each of the breaches of fiduciary duty set forth in the Second, Sixth and Seventh Claims for Relief. *fn5"

 Plaintiffs seek an order compelling the defendants to "make good to the [Fund] all losses of principal and interest to the [Fund] arising from said defendants' failure and refusal to collect from employers monies withheld from the gross pay of the members and not remitted to the [Fund]." Complaint P F. In addition, plaintiffs seek an order requiring the defendants to pay damages to the Fund in an amount necessary to fund pension benefits at the 3.3 percent level. Complaint P H. *fn6"

 DISCUSSION

 I. Class Certification

 Plaintiffs move, pursuant to Federal Rule of Civil Procedure 23, to have this action certified as a class action consisting of "all persons, other than defendants, who, as of May 29, 1992, were participants in and/or beneficiaries of the Pension Fund of Local One of the Amalgamated Lithographers of America" (the "proposed class"). The proposed class thus embodies both active and retired members of the Fund.

 In order to qualify for class action status, plaintiffs initially must establish that (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the proposed class representatives will fairly and adequately protect the interests of the proposed class. See Fed. R. Civ. P. 23(a). The defendants do not dispute that plaintiffs have satisfied the requirements of numerosity and commonality with respect to the proposed class. Accordingly, the Court shall only consider the third and fourth elements of Rule 23(a): adequacy and typicality.

 A. Adequacy of Representation

 The adequacy of representation component is met if the Court finds that (1) the representative party's attorney is qualified, experienced and generally able to conduct the litigation; and (2) plaintiffs' interests are not antagonistic to those of the remainder of the class. O'Neil v. Gencorp, Inc., No. 88 Civ. 8498, 1991 U.S. Dist. LEXIS 2475, at *13 (S.D.N.Y. Mar. 1, 1991). Defendants do not dispute that plaintiffs' attorneys are qualified and experienced. Defendants contend, however, that plaintiffs' interests are adverse to those of the proposed class. In support of this proposition, defendants argue that the competing interests of retired and active Members would preclude any fair allocation of damages. Defendants also conclude that, as several trustees were re-elected to Union office, a majority of the members of the proposed class do not share the goals and viewpoints of the named plaintiffs. The Court finds neither of the defendants' contentions persuasive.

 First, the Court finds that certification of plaintiffs' claims is not defeated by the presence of both retired and active Members in the proposed class. See Probe v. State Teachers' Retirement Sys., 780 F.2d 776, 781 (9th Cir.) (upholding class certification and finding that no conflict exists between retired teachers seeking increased benefits and currently employed teachers who will theoretically have to pay such benefits), cert. denied, 476 U.S. 1170, 90 L. Ed. 2d 978, 106 S. Ct. 2891 (1986); Church v. Consolidated Freightways, Inc., No. C-90-2290, 1991 U.S. Dist. LEXIS 15419, at *15 (N.D.Cal. June 14, 1991) (the presence of former and current employees in the proposed class does not create a conflict for purposes of a class action). While the interests of retired and active Members may have diverged with respect to whether benefits levels should have been reduced in light of the Fund's current financial crisis, all Fund Members seek the make-whole relief claimed by the named plaintiffs for breach of the defendants' fiduciary duties, as well as monies allegedly owed to the Fund by employers. Moreover, the Court notes that, as any recovery under section 502(a)(2), 29 U.S.C. § 1132(a)(2), goes to the Fund as a whole, and as Fund participants may bring an action only in a representative capacity on behalf of the entire Fund, the proposed class must include all Fund participants, including retired and active Members. See Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142 n.9, 87 L. Ed. 2d 96, 105 S. Ct. 3085, (1985). *fn7"

 Second, the Court finds the defendants' conclusion that the fact that certain trustees won re-election to Union office indicates that members of the proposed class do not share the named plaintiffs' viewpoints to be speculative at best. As set forth in plaintiffs' Reply Memorandum of Law In Support of Their Motion for Class Certification, dated July 21, 1993, at 4-5, more than one issue predominated the Union election. In fact, defendants may have won Union office because of issues that pertained solely to the Union, and not because of issues concerning the Fund. Alternatively, Fund issues may have been dispositive to some, but not all, voters. In any event, "class certification should not be denied by speculative suggestions of potential conflicts." Breedlove v. Tele-Trip Co., No. 91 C 5702, 1993 U.S. Dist. LEXIS 10278, at *20 (N.D.Ill. July 26, 1993). *fn8" Accordingly, the Court finds that plaintiffs will adequately represent the interests of the proposed class.

 B. Typicality

 Defendants also contend that the claims of the named plaintiffs are not typical of the claims of the proposed class. "Generally, the typicality requirement is met if the plaintiffs' claims arise out of the same events or course of conduct that give rise to the claims of the other class members and if it is based on evidence and legal theories consistent with the other members' claims." O'Neil v. Gencorp, Inc., 1991 U.S. Dist. LEXIS 2475, at *5.

 Defendants argue that there is no "typical" injury here, as the reduction in benefits levels has had widely differing impacts on individual Fund Members. The Court disagrees. While retired Members may have enjoyed a windfall in the form of excessive benefits in the past, all plaintiffs now suffer from reduced benefits levels as a result of the defendants' alleged breach of their fiduciary duties. Moreover, even if the amount of damages due each individual Member varies, the legal theories and course of conduct upon which this suit is ...


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