HIBERNIA BANK v. INTERNATIONAL BROTH. OF TEAMSTERS

MEMORANDUM OF OPINION AND ORDER

RENFREW, District Judge.

In this case plaintiff Hibernia Bank ("Bank") has brought suit to recover damages for losses it allegedly suffered as a result of alleged misfeasances in the composition and administration of certain union trust funds.1 Defendants include the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America ("Teamsters Union"), one of its local unions, two of its joint councils, numerous trustees of the union trust funds, and the trustees of the Teamsters Security Fund of Northern California, Inc. ("TSF"). In each of the five claims asserted, the Bank puts forward a separate theory of recovery2 for a loss in excess of $700,000 which it allegedly incurred when TSF failed to repay overdrafts3 of that amount in its commercial account with the Bank. TSF has subsequently entered into bankruptcy proceedings under Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701 et seq., and is not presently a party to this action. The Bank also seeks punitive damages in the amount of $1,000,000 and injunctive and declaratory relief against defendants.

Two of the claims asserted by the Bank are based on alleged violations of federal statutes. The jurisdiction of this Court is alleged to exist pursuant to Section 302(e) of the Labor Management Relations Act, 29 U.S.C. § 186(e); Section 502(e)(1) of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132(e)(1); and 28 U.S.C. § 1337.4 To these federal claims the Bank seeks to append, by way of the doctrine of pendent jurisdiction, the three claims based exclusively on state law. The plethora of motions made by the multitude of defendants requires the Court to determine whether the two federal claims are sufficient to allow this case to proceed in federal court. The Court has concluded that the Bank lacks standing to sue under either of the federal statutes upon which it relies and that jurisdiction over the state claims is not justified.

A brief summary of the factual allegations of the amended complaint will suffice for the resolution of the motions before the Court. TSF is a nonprofit California corporation organized by certain officers of two joint councils of the Teamsters Union operating in Northern California. The articles of incorporation of TSF provide that one of its purposes is to:

The administrative services provided by TSF were subsequently utilized by the trustees of a number of union trust funds which had been established pursuant to collective bargaining agreements between certain local unions and the employers of the union members represented by the local unions.

TSF and the individual trusts maintained commercial accounts with the Bank. In addition, after 1969, each of the trusts maintained a savings account with the Bank. The gravamen of the amended complaint is that the Bank has lost or is in the process of losing in excess of $700,000, which is the amount by which the TSF commercial checking account was overdrawn at the time TSF applied for bankruptcy. TSF exercised certain control over the commercial and savings accounts of the individual trusts. The amended complaint alleges:

I

The first claim set forth in the amended complaint alleges one or more violations of Section 302 of the Labor Management Relations Act, 29 U.S.C. § 186. Subsections (a) and (b) of Section 302 make it unlawful for an employer to pay and for any representative of its employees to receive, any money passing from the former to the latter.5 Subsection (c) provides eight exceptions to this general proscription, the fifth of which is for money paid to a welfare trust fund for the "sole and exclusive benefit of the employees of such employer, and their families and dependents." 29 U.S.C. § 186(c)(5). In order to qualify under Section 186(c)(5), a trust fund must meet certain statutory conditions. The Bank's claim for declaratory, injunctive, and monetary relief is based on the alleged failure of defendants to comply with those conditions.

The Bank's first claim is not a model of precise pleading, including as it does a wide array of factual allegations which are only loosely associated with the legal grounds on which recovery is sought. One putative "claim showing that the pleader is entitled to relief" is clear. Fed.R.Civ.P. 8. Because of the relationship between TSF and the trusts to which it provided administrative services, the Bank alleges that TSF was subject to the requirements of Section 302. One specific requirement of the statute is that "employees and employers [be] equally represented in the administration of such fund * * *." 29 U.S.C. § 186(c)(5)(B). The Bank alleges that the directors were drawn exclusively from union groups, and therefore TSF was not in compliance with the statute. The first claim also includes a number of allegations of breaches of fiduciary duty by the various defendants, although these are not specifically characterized in the complaint as violations of Section 302. However, in the Bank's briefs, the argument is made that these breaches constitute violations of the statutory requirement that Section 302 trusts be established and administered "for the sole and exclusive benefit of the employees of [the contributing] employer * *." 29 U.S.C. § 186(c)(5).

The Bank's claim under Section 302 has been met by an avalanche of motions from the defendants raising a multitude of alleged defects in that claim. The objections raised in the defendants' briefs run the gamut of issues possible under Section 302, beginning with the Bank's standing to sue and extending to the substantive scope of the provision and the relief available under it. After careful study, the Court has concluded that the Bank has failed to clear the initial hurdle of establishing its standing to sue for a violation of Section 302, thus obviating the need for the Court to reach the other issues raised by defendants.

The law of standing is a welter of holdings in a variety of cases involving dramatically different factual settings and legal claims. Indeed, the frequency with which the Supreme Court has discussed the law of standing indicates the difficulty of the subject. As a result, generalizations are difficult, if not, as the Supreme Court has said, "largely worthless as such". Data Processing Service v. Camp, 397 U.S. 150, 151, 90 S.Ct. 827, 829, 25 L.Ed.2d 184, 187 (1970).

Eschewing generalizations, the Court begins with the specific situation now before it. The Bank seeks declaratory, injunctive and monetary relief based on injury which it allegedly suffered as a direct consequence of defendants' violation of a federal statute. In analyzing this situation, the Court has relied upon the most recent decision of the Supreme Court on the subject of standing, Warth v. Seldin, 422 U.S. 490, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975).

In Warth the Supreme Court stated:

The question of standing to sue under Section 302 cannot be so easily resolved. The statute provides for both criminal and civil enforcement, 29 U.S.C. § 186(d) and (e), but the question of standing to invoke the civil enforcement powers of the federal courts is not specifically addressed. Section 302 simply provides:

Without any explicit statutory provision regarding standing, the Court is thrown back on an analysis of the purposes of the statute and the established principles of standing. As stated by the Supreme Court in Warth, the question to be resolved is "whether the * * * statutory provision on which the claim rests properly can be understood as granting persons in the plaintiff's position a right to judicial relief." 422 U.S. at 500, 95 S.Ct. at 2206, 45 L.Ed.2d at 355 (footnote omitted). Several years earlier in Data Processing Service v. Camp, supra, 397 U.S. at 153, 90 S.Ct. at 830, 25 L.Ed.2d at 188, the Court phrased the question as "whether the interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute * * * in question."

Despite an abundance of case law interpreting other aspects of Section 302, there is a paucity of authority on the question of standing to sue under it. The only Court of Appeals decision cited by the parties which directly addresses the issue of standing is Employing Plasterers' Ass'n v. Journeymen, Etc., 279 F.2d 92 (7 Cir. 1960), a case cited by the Bank but which, in the Court's opinion, favors defendants. In that case the Court of Appeals for the Seventh Circuit held that the Employing Plasterers' Association of Chicago ("Association"), a nonprofit trade corporation representing 45 out of approximately 200 Chicago plastering contractors, had standing to sue under Section 302. The Association negotiated and executed collective bargaining agreements on behalf of its members, and it had negotiated the collective bargaining agreement which had established the plan of employer contributions at issue in the case. Furthermore, under that plan, the Association was responsible for the assessment, collection, and contribution from its members of their contributions, calculated as a certain number of cents per hour per man employed. Id. at 94. Responding to the defendants' challenge to the standing of the Association to sue under Section 302, the court stated that:

In the instant case, the involvement of the Bank "with the payment, acceptance, and administration of welfare funds" was notably indirect in comparison to that of the Association in Employing Plasterers'. The Bank's involvement scarcely extended beyond the provision of normal banking services that it provides to a wide variety of customers.6 Apart from this obvious distinction, there is language in the Employing Plasterers' decision which tends to refute the Bank's contention that it would have standing under the Seventh Circuit's interpretation of the statute.

Defendants in that case had raised the equitable defense of unclean hands, basing the defense on plaintiff's participation in the establishment and administration of the challenged trusts. The court rejected the defense, primarily for the following policy reason, which, incidentally, sheds considerable light on the intended scope of the court's holding on the question of standing:

This apparently exhaustive enumeration of the basic categories of potential plaintiffs who have standing to sue under the statute cannot be stretched to include a plaintiff in the position of the Bank.7

Although Congress' silence on the question of standing under Section 302 requires the Court to proceed by implication, there is no reason to suppose that there was any intention to extend standing to an entity in the Bank's position. The extension of standing to such a party is not necessary to the effectuation of the purposes of the statute. The statute deals primarily with employers and their employees — parties who naturally adopt a somewhat adversarial posture in their dealings. The statute furthermore contemplates the participation in the administration of the trusts of neutral trustees. All of these parties and their representative organizations have, in addition to their own self-interest, the fear of possible criminal sanctions under Section 302 to encourage compliance with the statutory provisions. There is no reason to suppose that by extending standing to the Bank in this case, there would be any impetus toward a subsidiary enforcement role for other banks providing banking services to other Section 302 trusts.8 Yet, that is the only substantial policy argument in favor of extending standing to the Bank. Certainly, one must agree with defendants that Congress did not intend this statute to serve as a rather far-fetched way of extending federal jurisdiction over essentially state matters, such as the recovery of a debt.

In answer to these objections, the Bank places its primary reliance on language from the Supreme Court's decision in Flast v. Cohen, 392 U.S. 83, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968), a case which explored the standing of federal taxpayers to challenge congressional appropriation of funds. In Flast the Court stated that:

The status claimed by the Bank is that of "agent" of the defendant trusts, although that agency relationship only extended to performing customary banking services. The nexus between the Bank's status and the violations alleged in the amended complaint is stated by the Bank in its briefs as follows:

The Bank's reliance on Flast is misplaced for several reasons. First, the language quoted above from the more recent decisions in Warth and Data Processing speaks more directly to the proper analysis of standing under a statutory provision such as Section 302 and is, therefore, a better guide to decision. However, even when the Flast test is applied, the Bank's argument fails, because it concentrates excessively on the "nexus" and consequently fails to focus sufficiently on the necessary "status". Not everyone who can allege a causal connection between a statutory violation and a loss suffered by them is entitled to sue under the statute, and, for the reasons stated above, the Court does not feel that the Bank possesses the necessary status to sue under Section 302.

Moreover, the allegations of the complaint are inadequate to establish the "personal stake" necessary for the Bank to have standing. Warth v. Seldin, supra, 422 U.S. at 498-499, 95 S.Ct. at 2205, 45 L.Ed.2d at 354, quoting Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 703, 7 L.Ed.2d 663, 677 (1962). The Warth decision is especially instructive for the evaluation of a putative nexus such as that claimed by the Bank. In Warth several categories of plaintiffs sought to challenge an allegedly unconstitutional zoning ordinance adopted and enforced by the City of Penfield, New York. For several classes of plaintiffs, the question of standing hinged on the alleged nexus — to use the language of Flast — between the violation and their injury. As a preliminary matter, the Court emphasized that:

For purposes of resolving the issue of standing, the Supreme Court assumed that "Penfield's zoning ordinance and the pattern of enforcement by respondent officials have had the purpose and effect of excluding persons of low and moderate income, many of whom are members of racial or ethnic minority groups", and that "such intentional exclusionary practices, if proved in a proper case, would be adjudged violative of the constitutional and statutory rights of the persons excluded." Id. at 502, 95 S.Ct. at 2207, 45 L.Ed.2d at 357. The Court then turned to an analysis of the standing of the plaintiffs in the category of "persons of low and moderate income" who had each asserted that "he made some effort, at some time, to locate housing in Penfield that was at once within his means and adequate for his family's needs. Each claim[ed] that his efforts proved fruitless." Id. at 503, 95 S.Ct. at 2207, 45 L.Ed.2d at 357. (footnote omitted). Despite the liberality of its assumptions, the Court held that plaintiffs had not demonstrated their standing because of their failure to

Furthermore, and especially significant in this case, the fact that such allegations are made may not be sufficient. Another class of plaintiffs in Warth had claimed standing to sue as taxpayers of the nearby city of Rochester, New York. Their rather imaginative theory was that the restrictive zoning ordinance in Penfield had eliminated low and moderate income families from Penfield and had thrust the burden of providing housing for them on Rochester, thus causing Rochester to build more low and moderate income housing, requiring more tax abatements, and thereby throwing a greater burden on the taxpayers of Rochester. Notwithstanding these allegations, the Court held that the taxpayers lacked standing:

Applying the same type of analysis applied in Warth to the instant case, the Court concludes that the Bank lacks standing to sue for a violation of Section 302. A careful reading of the amended complaint reveals no allegation of a causal connection between the alleged structural violation of Section 302 and the loss suffered by the Bank. The amended complaint does contain an allegation regarding the nexus between another alleged violation of Section 302 and the loss by the Bank:

Presumably, the same argument would apply to the other alleged breaches of fiduciary duty set out in the first claim which focused on the inefficiency and maladministration of the trustees, but the argument is left to inference.

The amended complaint makes it clear that the loss suffered by the Bank resulted from an accumulated overdraft in the account of TSF which was not repaid. While the alleged violations of fiduciary duty may have increased the costs of administering the trusts, the relationship between those violations and the honoring of the overdraft by the Bank is not addressed at all. Even when all the allegations of the amended complaint are considered, it appears that the Bank had it within its power at all times to avoid the losses of which it complains simply by refusing to honor the overdraft. The only possible exception which appears in the amended complaint is the allegation of fraud, but that is a state claim and not a part of the alleged Section 302 violations. In this case, the Court is convinced that there have not been the necessary factual allegations to establish that the Bank has standing under Section 302.9

II

The second claim of the amended complaint is based upon an alleged violation of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. Based upon the same factual allegations as the first claim, this claim is that the actions taken by the defendants constituted violations of their fiduciary duties under Section 404 of ERISA, 29 U.S.C. § 1104. For these alleged violations, the Bank attempts to recover damages in the amount of its loss of the unpaid overdraft and attorneys' fees. Jurisdiction is alleged to exist under Section 502(e)(2) of ERISA, 29 U.S.C. § 1132(e)(2). The Court assumes that there is a typographical error in the jurisdictional allegation and that the intended citation was Section 502(e)(1), rather than Section 502(e)(2), which is concerned with the proper venue of a civil action.

Defendants have argued that the Bank has no standing to sue for an alleged violation of ERISA. The analysis of this argument is somewhat more straightforward than that of standing under Section 302, because ERISA specifically states those categories of potential plaintiffs which have standing to sue under it. Section 502(a) of ERISA, 29 U.S.C. § 1132(a), defines those categories of persons who may bring various civil enforcement actions under the Act. Some categories of persons are empowered to bring one type of enforcement action but not another; however, when all types of enforcement actions are considered, only four categories of persons are empowered to bring a civil action under the Act. They include (1) the Secretary of Labor, (2) "participants" in ERISA trusts, (3) "beneficiaries" of ERISA trusts, or (4) "fiduciaries" of ERISA trusts. The Bank claims the right to sue both as a beneficiary and as a fiduciary, as defined by the statute. Although the Bank's position is resourceful, it is also unavailing.

Section 3(8), 29 U.S.C. § 1002(8), defines a "beneficiary" as "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder."10 The Bank's amended complaint simply asserts its status as a beneficiary, an assertion that is amplified only slightly in the Bank's briefs, where the following argument is made:

Although the word "benefit" is not specifically defined by the Act, the Court is convinced that Congress did not intend to include an entity such as the Bank in the category of "beneficiaries". This conviction is supported by the definitions of "employee welfare benefit plan" and "welfare plan" in Section 3(1) of the Act, 29 U.S.C. § 1002(1). The benefits to which a beneficiary must be entitled are, in general, "fringe benefits" such as medical disability and vacation payments.

The Bank's second argument is that it is entitled to sue because of its status as a "fiduciary", as defined by the statute. Section 3(21)(A) of the Act, 29 U.S.C. § 1002(21)(A) provides:

The allegation in the complaint of the Bank's fiduciary status is purely conclusory. Here, however, even the briefs are not especially illuminating as to the Bank's argument. The Bank's original brief in opposition to the defendants' motions simply stated that "[The Bank] is a fiduciary under the plain language of the statute; Act, § 3(21)(A) and 38(A) & (B), 29 U.S.C. § 1002(21)(A)." In the supplemental brief, the Bank relied upon "the facts alleged in the complaint concerning Hibernia Bank's relationship with the defendant fiduciaries, and * * the plain language of the statute * * *." Only in responding to the arguments made by defendants did the Bank clearly state its position. The Bank argues, first, that it is a fiduciary because it has the requisite "discretionary authority [and] discretionary control responsibility respecting management of such plan * * *." 29 U.S.C. § 1002(21)(A). The Bank also claims fiduciary status because of its agency relationship with the defendant trustees, who are ERISA fiduciaries. The final argument is that ERISA gives fiduciary status to custodians of employee benefit plans, and that the Bank is such a custodian.

The Bank's first two arguments rely upon the "agency" relationship which exists between the Bank and the individual trusts because of the "letter agreement" reached between them.11 The Court has examined this agreement and has concluded that it simply will not support the Bank's arguments. The letter agreement sets forth seven precise duties of the Bank; no other duties are specified therein or even suggested. Items 1, 2, 3 and 7 refer to the simple maintenance of an account and the preparation of records associated therewith. Items 4, 5 and 6 refer to the payment and expenditure of moneys, but each item expressly provides that such payments and expenditures are to be made only at the direction of defendant Carlson. The Court is unable to find any evidence of the "discretionary authority and responsibility" asserted by the Bank and required by the statute.

The Bank's final argument is that under Section 3(14), 29 U.S.C. § 1002(14), a "custodian" of an employee benefit plan is a "fiduciary". Section 3(14) defines the phrase "party in interest" and provides in pertinent part:

Obviously, a custodian can be a fiduciary, but only if it possesses the requisite discretionary authority and discretionary control required by Section 3(21) of ERISA. Section 3(14) in no way enlarges the definition of a fiduciary set forth in Section 3(21); it merely mentions several of the categories which might be so characterized. The Court also notes that this interpretation is consistent with an Interpretive Release, 40 Fed.Reg. 47491 (1975), regarding the definition of a fiduciary under ERISA issued by the Department of Labor on October 3, 1975. Therein the Department states that an entity which has "no power to make any decisions as to plan policy, interpretations, practices or procedures" and which serves such plan only for the "[c]ollection of contributions and application of contributions as provided in the plan" is not a fiduciary.

Accordingly, the Court concludes that the Bank is neither a fiduciary nor a beneficiary under the express provisions of ERISA and thus has no standing to bring suit under that Act.

III

Because of the Court's conclusion that the Bank lacks standing to sue under either of the federal statutes under which relief has been sought, judicial economy would not be served by the exercise of pendent jurisdiction over the state claims.12 See United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218, 228 (1966). Because those claims are properly to be litigated in the state courts, they are hereby dismissed.

Accordingly,

IT IS HEREBY ORDERED that defendants' motions to dismiss the complaint for failure to state a claim are granted and the complaint and action herein are dismissed.

IT IS HEREBY FURTHER ORDERED that counsel for defendants shall prepare an appropriate form of judgment in accordance with this Memorandum of Opinion and Order.

IT IS HEREBY FURTHER ORDERED that the Bank's Motion for Leave to File a Second Amended Complaint is denied without hearing.