JOHN P. MOORE, Circuit Judge.
This is an appeal from the district court's order placing a constructive trust upon plaintiff's pension benefits, 641 F.Supp. 360 (1986). The trust was imposed to allow recovery of a judgment obtained by the Sheet Metal Workers' International Association, Local No. 9 (the Union), for money embezzled by Mr. Guidry from the pension fund. Plaintiff argues that the anti-alienation provision of ERISA (the Act) should have precluded the district court from placing his pension benefits in a constructive trust. Plaintiff also claims that imposition of a constructive trust must be limited to funds linked to his embezzlement and traceable into the pension funds, or, alternatively, that seventy-five percent of pension benefits must be exempted from the constructive trust because of garnishment restrictions in the Consumer Credit Protection Act. We are not persuaded by these arguments and affirm the district court's decision.
From 1964 until 1981, Mr. Guidry served as business manager and chief executive officer of the Union. During approximately the last five years of this period, Mr. Guidry was also a trustee of the Union's pension fund. When he resigned as business manager, the Union commissioned an audit which concluded that nearly $1,000,000 had been stolen from it. In March 1982, Mr. Guidry pled guilty to embezzling $377,000 from the Union by depositing into his own account checks made payable to the Union from several trust funds. The Union and Mr. Guidry stipulated to the entry of a $275,000 judgment in January 1986 on the Union's first five claims of relief. That judgment has been certified as final.
Mr. Guidry brought this suit after being denied early retirement pension benefits by the Sheet Metal Workers' National Pension Fund and the Sheet Metal Workers' Local Unions and Councils Pension Plan.
Plaintiff first contends that the district court's decision to impose a constructive trust on his interest in the pension plan is contrary to the anti-alienation provision of ERISA. This provision mandates that "[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated." 29 U.S.C. § 1056(d)(1). The only express exceptions to this provision allow assignment for a "qualified domestic relations order" and "a voluntary and revocable assignment of not to exceed 10 percent of any benefit payment...." 29 U.S.C. § 1056(d)(2),(3). Plaintiff further points out two circuit courts have held that the meaning of § 1056(d)(1) is clear and have therefore refused to find an exception for criminal conduct. See Ellis Nat'l Bank of Jacksonville v. Irving Trust, 786 F.2d 466 (2d Cir.1986); United Metal Prods. v. National Bank of Detroit, 811 F.2d 297 (6th Cir.1987), cert. denied, ___ U.S. ___, 108 S.Ct. 1494, 99 L.Ed.2d 879 (1988).
However, the anti-alienation provision has not been regarded as immutable by the courts. In Stone v. Stone, 632 F.2d 740 (9th Cir.1980), cert. denied, 453 U.S. 922, 101 S.Ct. 3158, 69 L.Ed.2d 1004 (1981), for example, the court required pension plan payments to be made directly to an ex-spouse to pay her community property share. A number of courts have also garnished pension plan benefits to satisfy alimony and child support obligations.
Building upon these earlier decisions, the D.C. Circuit and the Eleventh Circuit have decided that a court may garnish a beneficial interest in a plan to satisfy a judgment based on a breach of ERISA. In Crawford v. La Boucherie Bernard, Ltd., 815 F.2d 117 (D.C.Cir.), cert. denied, ___ U.S. ___, 108 S.Ct. 328, 98 L.Ed.2d 355 (1987), the court offset the interest of a participant and trustee in a profit sharing plan against a judgment based on his embezzlement of trust funds. The court emphasized the broad goal of ERISA to "protect ... the interests of participants in employee benefit plans ... by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts." 29 U.S.C. § 1001(b). The court also noted ERISA provides that a person who breaches a fiduciary duty "shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, ... and shall be subject to such other equitable or remedial relief as the court may deem appropriate...." 29 U.S.C. § 1109(a). Pursuant to these statutes, the court held that it had broad authority to fashion remedies, including offsetting defendant's plan benefits against a judgment debt, to redress breaches by trustees and to protect the interests of participants and beneficiaries. 815 F.2d at 119.
The court in St. Paul Fire and Marine Ins. v. Cox, 752 F.2d 550 (11th Cir.1985), also held that a trustee-participant's interest in a pension fund could be garnished to satisfy a judgment debt resulting from embezzlement of funds. The court found that ERISA's purpose of establishing standards to assure the equitable character of pension funds included protecting employees against mismanagement of these funds. "The insulation of an employee from liability for the consequences of his criminal misconduct does not protect the financial interests of other employees or promote security in the workplace," the court concluded.
We agree with the D.C. and Eleventh Circuits and decline to follow the holdings of Ellis Nat'l Bank and United Metal Prods.
Furthermore, the district court's use of a constructive trust to redress breaches of ERISA was proper. The Supreme Court has consistently emphasized the inherent equitable jurisdiction of federal district courts.
Far from limiting the inherent power of a district court, Congress emphasized on several occasions the broad scope of remedies available under ERISA. In addition to the previously mentioned statutory language giving the courts authority to fashion remedies, e.g., 29 U.S.C. § 1109(a), the legislative history of the Act indicates Congressional intent to provide a broad variety of remedies for redressing the interests of participants and beneficiaries when they have been adversely affected by breaches of fiduciary duty. See Eaves v. Penn, 587 F.2d 453, 462 (10th Cir.1978). For example, the Report of the Senate Committee on Labor and Public Welfare states: "The enforcement provisions have been designed specifically to provide both the Secretary and participants and beneficiaries with broad remedies for redressing or preventing violations.... The intent of the committee is to provide the full range of legal and equitable remedies available in both state and federal courts." S.Rep. No. 93-127, 93d Cong., 2nd Sess., reprinted in 1974 U.S.Code Cong. & Admin. News 4639, 4838, 4871. In developing these remedies, Congress intended the federal courts to draw upon principles of traditional trust law:
Statement of the Honorable Harrison A. Williams, Jr., 120 Cong.Rec. S-15737, Aug. 22, 1974, reprinted in 1974 U.S.Code Cong. & Admin. News 5177, 5186.
Trust law contemplates the use of flexible remedies which will be most advantageous to the trust's participants and will be most conducive to effectuating the purposes of the trust. Eaves v. Penn, 587 F.2d at 462 (quoting Restatement (Second) of Trusts § 214 (1959)). It is also an axiom of trust law that a trustee should not be permitted to benefit from his own breaches, Restatement (Second) of Trusts § 205 comment i, and the constructive trust has long been recognized as a method for preventing the unjust enrichment of a trustee who has fraudulently divested a trust. E.g., Askins v. Easterling, 141 Colo. 83, 347 P.2d 126 (1959); Unicure, Inc. v. Thurman, 42 Colo.App. 241, 599 P.2d 925 (1979). We believe the district court's imposition of a constructive trust on plaintiff's pension benefits both accorded with these principles of trust law and was well within its discretionary power as defined by the common law and ERISA. We therefore affirm its employment of the constructive trust remedy.
Plaintiff next argues that even if the use of the constructive trust is upheld, it can
This argument is not convincing. Plaintiff correctly states the standard rule that beneficiaries only have a personal claim against a trustee unless they are able to trace the trust property. However, if the trustee is also a beneficiary, it is a tenet of trust law that other beneficiaries can compel repayment out of the trustee's beneficial interest of any losses to the trust resulting from a breach of duty. This rule applies even if the beneficiaries cannot trace the stolen trust property. III A.W. Scott, Scott on Trusts § 202 (3d ed. 1967). As Professor Scott explains:
Id. § 257. See also G.G. Bogert & G.T. Bogert, The Law of Trusts and Trustees § 191 (2d ed. 1979) ("[i]f a beneficiary is also a trustee of his own trust ... and ... if he steals trust funds, or causes damage to the trust estate in other ways, his share under the trust, whether in his own hands or those of a transferee, will be taken by the court in order to make good the loss").
The few relevant cases uniformly follow the rule articulated in these treatises. For example, in In re Van Nostrand's Will, 177 Misc. 1, 29 N.Y.S.2d 857 (Sur.Ct.1941), the court placed an equitable lien upon the beneficial interest of a trustee who had embezzled trust property to compensate wronged beneficiaries of the trust. The trustee-beneficiary was treated as having received his interest by anticipation: he could not enjoy his beneficial interest because he had already embezzled his share of the trust. 29 N.Y.S.2d at 865. See also In re Watson, 449 N.E.2d 1156 (Ind.Ct.App.1983) (successor trustee properly applied former trustee's undistributed income to satisfy prior judgment for embezzling trust corpus); In re Brereton's Estate, 388 Pa. 206, 130 A.2d 453 (1957) (beneficiaries may impound share of trustee-beneficiary who advanced himself sums from the trust).
The fact that the anti-alienation provision of ERISA might be interpreted as a spendthrift clause does not preclude the use of a constructive trust to garnish plaintiff's pension benefits. While the interest of a trustee-beneficiary of a spendthrift trust cannot be reached by his creditors, other beneficiaries can still impound the interest to satisfy losses resulting from a breach of trust unless the settlor of the trust specifies otherwise. See, e.g., Restatement (Second) of Trusts § 257 comment f; III Scott on Trusts § 257.1. In In re Burr, 143 Misc. 877, 257 N.Y.S. 654 (Sur.Ct.1932), aff'd, 239 A.D. 774, 263 N.Y.S. 945 (N.Y.1933), for example, the court held that a trustee properly withheld trust payments owed to a prior trustee who had misappropriated trust funds. In reaching this conclusion, the court disregarded a state statute precluding the assignment of a beneficiary's interest because "[i]t was not intended to protect a dishonest fiduciary in the retention of income otherwise payable to him from the trust." 257 N.Y.S. at 657.
Plaintiff's final argument is that he may exempt seventy-five percent of his pension benefits from garnishment under the provisions of the Consumer Credit Protection Act. According to this legislation, only a maximum of twenty-five percent of an individual's weekly earnings may be garnished. 15 U.S.C. § 1673(a). "Earnings" are defined as "compensation paid or payable for personal services, whether denominated as wages [or] salary ... and includes periodic payments pursuant to a pension or retirement program." 15 U.S.C. § 1672(a); see also Ward v. Ward, 164 N.J.Super. 354, 396 A.2d 365 (1978) (pension benefits are "earnings" under the Consumer Credit Protection Act). Furthermore, "garnishment" is defined as "any legal or equitable procedure through which the earnings of an individual are required to be withheld for payment of any debt," 15 U.S.C. § 1672(c), and could encompass the constructive trust levied in the instant case.
However, plaintiff appears to have not complied with the procedural requirements of Colorado's garnishment laws.
We are mindful that the garnishment proceedings in the instant case were unusual, since the three defendant pension funds argued throughout the proceedings that plaintiff had forfeited his pension benefits by his fraudulent conduct and therefore the Union could not garnish any money in the funds. Nevertheless, Colorado places the burden of objecting to a writ of garnishment firmly upon the judgment debtor; the failure of the judgment debtor to file a timely objection results in the automatic disbursement of the garnished money to the judgment creditor. C.R.C.P. 103, § 1(l)(1). Plaintiff in the instant case received a copy of the writ of garnishment which both gave the calculation of the nonexempt money owed to the Union and enumerated his right to object to the garnishment. Plaintiff should have then responded to the Union's writ seeking all his pension benefits by bringing the exemption restriction of the Consumer Credit Protection Act to the court's attention. Having failed to do so, we believe plaintiff may not now raise this issue several years after the writs of garnishment were issued. The issue of the exemption was not properly before the district court; therefore, we refuse to consider it. Accordingly, we affirm the district court's judgment imposing a constructive trust upon all of plaintiff's pension benefits until the judgment debt is satisfied.
Although the court did not discuss the testator's intent, it is noteworthy that he did not appoint his wife trustee.
Furthermore, the widow did not act dishonestly or otherwise try to defraud the fund. As one commentator stated:
Recent Cases, 53 Harv.L.Rev. 129, 148 (1939) (citations omitted).