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EATON v. D'AMATO

May 1, 1980

WILLIAM EATON, ET AL., Plaintiffs,
v.
PAT D'AMATO, ET AL., Defendants; THOMAS NATIONAL GROUP, INC., Third-Party Plaintiff, v. FEDERAL INSURANCE COMPANY, Third-Party Defendant; TRUST FUND ADMINISTRATORS, INC., Third-Party Plaintiff, v. AETNA CASUALTY AND SURETY COMPANY, Third-Party Defendant


Gesell


The opinion of the court was delivered by: GESELL

This action, seeking compensatory and punitive damages for various alleged breaches of fiduciary and contractual duty, is brought by eight trustees on behalf of themselves and the two employee benefit plans *fn1" for which they act as named fiduciaries. Defendants are six individuals who serve as officers and/or directors for Trust Fund Administrators, Inc. ("TFA"), a corporation administering employee benefit plans, or for its corporate parent, Thomas National Group, Inc. ("TNG"). Both corporations also are named as defendants. Plaintiffs contend that TFA, which served as "administrator" *fn2" for the two plans until December 31, 1978, willfully failed to satisfy standards of fiduciary responsibility applicable under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. (1976) ("ERISA"). TFA is accused of deliberately and maliciously preventing the orderly transfer of delegated authority from itself to its designated successor, through certain acts of omission and affirmative disruption. Plaintiffs seek compensatory relief for having incurred unnecessary administrative and legal expenses estimated at $60,000 incident to the transfer of authority. They also claim punitive damages. Jurisdiction of this Court is asserted under Section 502 of ERISA, 29 U.S.C. § 1132 (1976). *fn3" Plaintiffs have requested a jury trial.

 After preliminary pretrial discovery, defendants here move to dismiss or, in the alternative, for summary judgment, on a variety of legal issues. They contend that TFA is not a "fiduciary" within the meaning of ERISA, and accordingly neither the corporation nor its officers can be sued under the statute. Defendants assert further that even if jurisdiction exists under ERISA, that statute does not authorize action for punitive damages. Finally, defendants seek dismissal of count three of the complaint for lack of standing, *fn4" and dismissal of the individual defendants for lack of personal jurisdiction. *fn5"

 Collateral to the main action, defendants TFA and TNG filed third-party complaints against their respective insurers, Aetna Casualty & Surety Company ("Aetna") and Federal Insurance Company ("Federal"). Each defendant corporation seeks to enforce against its insurer a duty to defend and to indemnify in connection with the violations alleged in plaintiffs' complaint. The two insurers have moved for summary judgment, in both instances claiming the terms of their policies do not cover defendants for the acts alleged by plaintiffs. While the policies themselves differ markedly regarding the precise scope and nature of protection afforded, each insurer advances a purely legal argument against its insured, and no material facts are in dispute.

 All of the above-mentioned issues have been thoroughly, indeed excessively, briefed, and the Court has heard oral argument.

 TFA's Status as a Fiduciary

 The Welfare Fund and the Pension and Retirement Fund are administered by eight trustees. Four are appointed by employer members of the Construction Contractors Council of Washington, D.C., and the other four by the Washington Area Carpenters' District Council, or union. The broad purpose of those funds is to distribute various benefits to eligible employees and their dependents, including medical and hospital care, pensions, compensation for work-related injuries and death benefits. Payment into the funds is governed by collective bargaining agreements with the union, to which all signatory employers are parties.

 TFA provided a range of administrative and management services for the two funds and their trustees over a period of some 20 years. The last contracts signed by the parties, effective September 1, 1971, governed the performance of these services until TFA's termination on December 31, 1978. *fn6" Under these agreements TFA was required, inter alia, to collect contributions, administer the funds' bank accounts and keep appropriate financial records; to process and adjudicate claims for medical care; to supervise operation of the dental clinic; to summarize the status of the funds on a monthly basis and report to the trustees; and to attend and transcribe minutes for all regular trustee meetings. Defendants view these specified duties, and others performed incident thereto, as purely ministerial, and nondiscretionary. Based on an alleged lack of discretion, defendants argue that they are not fiduciaries within the statutory definition contained at 29 U.S.C. § 1002(21)(A) (1976). *fn7" Despite the presence in both ERISA *fn8" and the Trust Fund Agreements *fn9" of provisions permitting the delegation of fiduciary responsibilities, it is urged that no such delegation occurred here. Defendants instead claim that the diverse functions identified above were performed by TFA under the direction and supervision of the trustees, within a tight framework of rules, interpretations, policies and practices which the trustees established over time. See 29 C.F.R. § 2509.75-8 at D-2 (1979).

 Defendants' reading of the statutory definition and its applicability to these facts is unduly restrictive. Congress enacted ERISA as a comprehensive remedial statute, and a liberal construction is warranted to effect the statute's remedial purpose. The Act is designed to safeguard the interests of employees and their dependents whose widespread participation in employee benefit programs was seen as vitally important to successful industrial relations, employment stability, and the flow of interstate commerce. 29 U.S.C. § 1001 (1976). To this end, the Act imposes strict standards of conduct on individuals and organizations occupying positions of confidence or trust with respect to employee benefit plans. See 29 U.S.C. §§ 1104, 1106-09 (1976). The legislative history is replete with indications of congressional concern to assure adequate protection for the interests of plan participants and beneficiaries beyond that available under conventional trust law. See, e.g., S. Rep. No. 127, 93d Cong., 1st Sess. 28-29 (1973), reprinted in [1974] U.S. Code Cong. & Admin. News 4838, 4864-65; H.R. Rep. No. 533, 93d Cong., 1st Sess. 11-12 (1973), reprinted in [1974] U.S. Code Cong. & Admin. News 4639, 4649-51. See generally 120 Cong. Rec. 29194 (1974) (Rep. Biaggi); 120 Cong. Rec. 29932 (1974) (Sen. Williams), 120 Cong. Rec. 29951 (1974) (Sen. Bentsen), 120 Cong. Rec. 29962 (1974) (Sen. Beall). Applying a restrictive judicial gloss to the term "fiduciary" itself would, in effect, enable trustees to transfer important responsibilities to a largely immunized "administrative" entity. A clear congressional desire to expand the scope of fiduciary standards of conduct should not be so undermined.

 Nothing in the language of section 1002(21)(A) is to the contrary. Indeed the actual definition here at issue applies to a person who exercises any discretionary authority regarding the plan's management or administration. As the Conference Report makes clear, Congress fully expected this definition to encompass consultants and advisors whose special expertise leads them to formulate and act on discretionary judgments while performing administrative functions not otherwise contemplated as fiduciary. See H.R. Rep. No. 1280, 93d Cong., 2d Sess. 323 (1974) (Conf. Report) reprinted in [1974] U.S. Code Cong. & Admin. News 5038, 5103.

 In short, on this record TFA and its key officials exercised far more than ministerial powers. Their status as administrator may well qualify them automatically as fiduciaries in this instance. See 29 C.F.R. § 2509.75-8 at D-3. The presence of TFA as a named insured on the fiduciary liability insurance policy purchased by the Trustees further supports such a position. Plaintiffs' claim that defendants may be sued as fiduciaries under ERISA survives for trial. *fn11" The connection, if any, between these fiduciary activities and TFA's alleged wrongdoing is, of course, a separate matter, to be resolved at trial.

 Punitive Damages

 ERISA itself is silent with respect to whether or not punitive damages are available. Limited case law on the subject discloses no uniformity of judicial opinion. Compare Wardle v. Central States, Southeast and Southwest Areas Pension Fund, No. 77-149 (S.D. Ind. 1979), and Hurn v. Retirement Trust Fund, 424 F. Supp. 80 (C.D. Cal. 1976), with Building Trades United Pension Trust Fund v. A.J.M. Construction Service, Inc., 271 BNA Pension Reporter D-3 (E.D. Wisc. 1979). Specific identification of other forms of relief *fn12" at first glance might appear to suggest a congressional intent to exclude punitive remedies. However, the scope of relief contemplated for violations of fiduciary duty belies such a conclusion. Under 29 U.S.C. § 1109(a)(1976), persons breaching fiduciary duty "shall be subject to such . . . equitable or remedial relief as the court may deem appropriate." The legislative history indicates that enforcement provisions were designed to furnish "broad remedies for redressing or preventing violations of the Act . . . [including] the full range of legal and equitable remedies available in both state and federal courts." H.R. Rep. No. 533, 93d Cong., 1st Sess. 17 (1973), reprinted in [1974] U.S. Code Cong. & Admin. News 4639, 4655. See also S. Rep. No. 127, 93d Cong., 1st Sess. 35 (1973), ...


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