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Administrator Liable Under ERISA
Filed January 8, 2001
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 00-1382
BOARD OF TRUSTEES OF BRICKLAYERS AND ALLIED CRAFTSMEN LOCAL 6 OF NEW
JERSEY WELFARE FUND, Appellant
v.
WETTLIN ASSOCIATES, INC. APPEAL FROM THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF NEW JERSEY (D.C. No. 99-cv-04874) District
Judge: Honorable Garrett E. Br own, Jr.
Argued November 14, 2000
Before: SLOVITER, AMBRO, and WEIS, Circuit Judges
(Filed: January 8, 2001)
John A. Adams, Esquire (ARGUED) Thomas J. McGoldrick, Esquire
McAleese, McGoldrick, Susanin & Widman, P.C. Suite 240 -- Executive
Terrace 455 South Gulph Road King of Prussia, Pennsylvania 19406
Counsel for Appellant
Roland Morris, Esquire (ARGUED) M. Elaine Jacoby, Esquire Duane,
Morris & Heckscher, LLP One Liberty Place Philadelphia, Pennsylvania
19103-7396
Counsel for Appellee
OPINION OF THE COURT
WEIS, Circuit Judge.
The issue in this case is whether ERISA's definition of
"fiduciary" includes an entity that receives contributions
from employers and awards benefits to participants pursuant to an
agreement with trustees of a union welfare fund. We conclude that the
allegations in plaintiff's complaint were sufficient to preclude a
ruling that no fiduciary status existed as a matter of law. Accordingly,
we will reverse the District Court's ruling that the complaint failed to
state a claim.
The facts are taken from the plaintiff's proposed amended complaint.
Plaintiff is the Board of Trustees of Bricklayers and Allied Craftsman
Local 6 of New Jersey W elfare Fund, an employee benefit plan within the
meaning of ERISA, 29 U.S.C. S 1002(3). The members of the Boar d of
Trustees have the discretionary authority to manage and control the
Local 6 Fund and are fiduciaries under ERISA, 29 U.S.C. S 1002(21)(A).
They meet only four to six times a year.
In 1988, the Board entered into an agreement providing that defendant
Wettlin Associates, Inc. would provide administrative services to Local
6 Fund. The Boar d delegated to Wettlin the day-to-day responsibility to
control, manage, hold, safeguard, and account for the fund's assets and
income. Wettlin determined the legitimate expenses of the fund, wrote
checks, and disbursed assets from the fund's bank account in accordance
with such determinations. That conduct was within Wettlin's discretion
and it was not required to seek approval from the Trustees in advance.
Wettlin was also required to collect contributions from employers
under the terms of collective bar gaining agreements, deposit them in
Local 6 Fund's bank account, and make payments in accordance with the
fund's obligations under the plan. As stated in the agr eement, Wettlin
would receive the following monthly compensation:
Welfare Fund $2,208.33
Pension Fund $ 833.33
Annuity Fund $ 833.33
Apprentice Training Fund $ 41.67
TOTAL $3,916.66
According to the complaint, "effective as of January, 1996, the
[Local 6] Fund also collected fringe benefit funds from contributing
employers which, in turn, were to be transferred by the Fund for deposit
to the New Jersey Bricklayers and Allied Craftworkers Health
Fund[(`state-wide fund')]." In carrying out this arrangement,
Wettlin was to transfer ninety-eight percent of the employer
contributions earmarked for the state-wide fund to that entity. The
amended complaint alleges that the two percent not transferred became an
asset of Local 6 Fund.
In February 1998, the Board notified Wettlin that its services would
terminate on April 1, 1998. Beginning on March 1 and continuing through
Mar ch 31, Wettlin paid itself $42,743.71 from the Local 6 Fund account,
the amount representing the two percent withheld from payments to the
state-wide fund.
Upon learning of this series of payments, the Board demanded
reimbursement, and when this was refused, filed suit in the District
Court of New Jersey. The Boar d alleged that Wettlin was a fiduciary
under ERISA and had breached its duty to the fund. The complaint also
pleaded various state law claims.
Relying on Federal Rule of Civil Procedure 12(b)(6), the District
Court dismissed plaintiff's complaint because it failed to offer any
factual basis to support its allegation that defendant was a fiduciary
under ERISA. Plaintiff then proffered an amended complaint, which was
rejected by a magistrate judge on the ground that it failed to
state a claim that would survive a motion to dismiss. The District Judge
agreed and dismissed the case, observing that Wettlin's role was
"nothing mor e than ministerial." The Board appealed.
We exercise plenary review when examining the grant of a motion to
dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Lorenz v.
CSX Corp., 1 F.3d 1406, 1411 (3d Cir. 1993). We accept the allegations
of the complaint as true and draw all reasonable inferences in the light
most favorable to the plaintiff. Id. Only if it appears certain that a
plaintiff could prove no set of facts supporting its claim and entitling
it to relief do we affirm. Wisniewski v. Johns- Manville Corp., 759 F.2d
271, 273 (3d Cir . 1985).
The Board of Trustees argues that Wettlin can be a fiduciary under
ERISA because discretion is not always a prerequisite for such a role.
Even if discretion is required, the Board contends that the amended
complaint sets forth a factual basis for concluding that Wettlin did
function in that manner. Wettlin contends that it was not a fiduciary
because it acted in a ministerial capacity, exercised no discretion, and
additionally asserts that the money in question was not an asset of
Local 6 Fund.
The ERISA provision at the heart of this case sets out the
description of a fiduciary:
"[A]
person is a fiduciary with respect to a plan to the extent (i) he
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) he renders
investment advice for a fee . . . or has any authority or responsibility
to do so, or (iii) he has any discretionary authority or discretionary
responsibility in the administration of such plan." 29 U.S.C. S
1002(21)(A) (emphasis added).
This statutory definition requires that a fiduciary "must be
someone acting in the capacity of manager , administrator, or financial
advisor to a plan.' " Pegram v. Herdrich, 530 U.S. ___ , 120 S.Ct.
2143, 2151 (2000). The statute uses differing criteria in imposing
fiduciary obligations for each of these roles. For plan financial
advisors, Congress assigned a fiduciary duty in subsection (ii) both to
those who actually render advice and those who simply have the authority
to do so. 29 U.S.C. S 1002(21)(A)(ii). For plan administrators,
subsection (iii) limits fiduciary status to those who have discretionary
authority or discretionary responsibility. 29 U.S.C. S 1002(21)(A)(iii).
For managers, subsection (i) sets the criteria.
Subsection (i) of 29 U.S.C. S 1002(21)(A) differentiates between
those who manage the plan in general, and those who manage the plan
assets. These functions are set out in two clauses under subsection (i)
separated by the conjunction "or." A significant difference
between the two clauses is that discretion is specified as a
prerequisite to fiduciary status for a person managing an ERISA plan,
but the word "discretionary" is conspicuously absent when the
text refers to assets. "This distinction is not accidental -- it
reflects the high standard of car e trust law imposes upon those who
handle money or other assets on behalf of another." FirsTier Bank,
N.A. v. Zeller, 16 F.3d 907, 911 (8th Cir. 1994). See Daniel Candee
Knickerbocker, Jr., Fiduciary Responsibility Under ERISA, S 2.05 (2000).
This distinction was emphasized in IT Corp. v. General American Life
Insurance Co., 107 F.3d 1415 (9th Cir. 1997). In that case, the
administrator had check-writing authority over the money received from
the employer that was deposited in the plan's bank account. Id. at 1417.
Noting that the "statute treats control over the cash differently
from control over administration," the Court concluded that
"`[a]ny' control over disposition of plan money makes the person
who has the control a fiduciary." Id. at 1421. The Court of Appeals
noted that because the employer had the responsibility to keep an amount
in a bank account sufficient to cover checks validly issued by the
administrator, "as a practical matter , a substantial amount of
money would [have been] under the contr ol of [the administrator], in
the form of a bank account which it could deplete by writing
checks." Id. Where there is such "authority or control,"
the District Court could not hold that the administrator was a
non-fiduciary as a matter of law. Id.
In Yeseta v. Baima, 837 F.2d 380, 386 (9th Cir. 1988), the same Court
of Appeals held that a corporate officer who withdrew plan funds for the
company's benefit was a fiduciary, despite authorization for the
withdrawal from other officers. Noting that section 1002(21)(A)
establishes that a person can be a fiduciary on the basis of control of
a plan's assets, the Court concluded it was unnecessary to sort through
the disputed facts to deter mine authority because control could decide
the issue. Id .
A corporate officer in LoPresti v. T erwilliger, 126 F.3d 34, 40 (2d
Cir. 1997), commingled company assets with benefit funds, and used them
to pay company debts. Hinting that the District Court had apparently
failed to appreciate the significance of the second clause of subsection
(i), the Court of Appeals reversed. Id. It held that an individual may
also become an ERISA fiduciary by exercising any authority or control in
connection with the management or disposition of plan assets. Id.
We come then to Confer v. Custom Engineering Co., 952 F.2d 34 (3d
Cir. 1991), on which the District Court relied in the present case.
Confer, a participant in an employee health benefit plan, alleged a
breach of fiduciary duty when he was denied medical benefits following
an accident. Id. at 35. He sued his employer, Custom Engineering Co.,
which was the plan's administrator and fiduciary, as well as the
officers of that company. Id. He also named as a defendant Self-Funded
Plans, Inc., which had been delegated day-to- day administrative tasks
for the plan. Id. W e affirmed summary judgment in favor of the company
officers, concluding that corporate officers acting on behalf of a
corporation are not themselves fiduciaries unless they have individual
discretionary roles in plan administration. Id. at 37.
More important to the case before us, we also held that Self-Funded,
the day-to-day administrator, was not responsible for wrongfully denying
benefits to the plaintiff. Id. at 39. "Since discretionary
authority, responsibility or control is a prerequisite to fiduciary
status, it follows that persons who perform purely ministerial tasks,
such as claims processing and calculation, cannot be fiduciaries because
they do not have discretionary roles. Self-Funded had no discretion to
deny or allow [plaintiff]'s claim." Id. (citation omitted). The
plaintiff's assertion to the contrary had "no basis in the plan
document, in Self-Funded's contract with Custom Engineering, or anywher
e else in the record." Id.
There are important distinctions between Confer and the case at hand.
Self Funded's alleged breach was with regard to its responsibilities in
the administration of benefits under the plan; therefore, its fiduciary
status under ERISA was determined by subsection (iii) of 29 U.S.C. S
1002(21)(A). Plaintiff in that case never alleged mismanagement of
assets. Thus, Confer concluded only that plaintiff had not demonstrated
that Self-Funded had discretionary authority or discretionary
responsibility in the administration of the plan. Confer, 952 F .2d at
39.
Wettlin does not argue that subsection (iii) applies in the present
case. Although Confer addressed subsection (iii), id., Wettlin contends
that the statements in that opinion linking fiduciary status and
discretion apply to all ERISA fiduciaries. We reject this argument as
contrary to the statutory text. "Discretionary" authority or
responsibility is required to confer fiduciary status for plan
administration under subsection (iii), and "discretionary"
authority or "discretionary" control is required for plan
management under subsection (i). As noted earlier, however, the
adjective "discretionary," so carefully selected for plan
administration and management, is omitted in subsection (i) when dealing
with authority or control over the management or disposition of plan
"assets." "The statute treats control over the cash
differently from control over administration." IT Corp., 107 F.3d
at 1421.
That Congress established a lower threshold for fiduciary status
where control of assets is at stake is not surprising, given that
"[a]t common law, fiduciary duties characteristically attach to
decisions about managing assets and distributing property to
beneficiaries." Pegram, 120 S.Ct. at 2155 ("[T]he common law
trustee's most defining concern historically has been the payment of
money in the interest of the beneficiary."). "By mandating the
trust form and by transposing the duty of loyalty from trust to pension
law, the drafters of ERISA were able to institute a familiar fiduciary
regime to protect pension funds against internal defalcation." John
H. Langbein & Bruce A. Wolk, Pension and Employee Benefit Law, 649
(2d ed. 1995).
Finally, Confer cited a series of interpretive questions and answers
promulgated by the Department of Labor and published at 29 C.F.R. S
2509.75-8. Confer, 952 F.2d at 36- 37. Wettlin contends that question
D-2 is relevant to our determination, characterizing its own actions as
simply "administratively ministerial," similar to those the
Department of Labor concluded were non-fiduciary functions of a plan
administrator. After examining the Department of Labor's interpretation
to which Wettlin points to, we conclude that it addresses situations
like that in Confer, involving the administration of benefits under a
plan, and does not speak to the activities under subsection (i).1 In any
event, these agency interpretations are not binding on us. See
Christensen v. Harris County , 529 U.S. ___, 120 S.Ct. 1655, 1662-63
(2000).
This is not the first case in which we have noted that the structure
of subsection (i) is significant in its interpretation. In Curcio v.
John Hancock Mutual Life Insurance Co., 33 F.3d 226, 233 (3d Cir. 1994),
we observed that although the party in that case was not a fiduciary
under the second half of subsection (i), separate analysis was necessary
to determine whether the first clause did give the party that status.
1.
Wettlin relies on 29 C.F.R.S 2509.75-8 D-2, function (8), one of the
categories that the Labor Department opines is non-fiduciary, as similar
to its role in the present plan: "Collection of contributions and
application of contributions as provided in the plan." The other
listed functions in the illustrative answer are purely administrative.
We also examined question FR-15, which states that a named fiduciary may
not delegate responsibility for management and control of plan assets to
anyone other than investment managers. 29 C.F .R. S 2509.75-8 FR-15. As
we read this answer, it distinguishes responsibility for management of
assets from discretionary conduct in other management functions. Thus,
read as a whole the questions and answers do not aid Wettlin's cause.
Unlike the defendant in Confer, Wettlin's potential liability
is created by subsection (i), which addresses fund assets and directs
that fiduciary status be assigned to the extent that a person
"exercises any authority or control respecting management or
disposition of its assets." 29 U.S.C. S 1002(21)(A)(i). To the
extent it applied dicta in Confer to the analysis of subsection (i), the
District Court erred.
The contract attached to the plaintiff's amended complaint lists the
functions to be performed by Wettlin. Most of these appear to be purely
ministerial and are specifically subject to the direction of the
trustees. The provisions directing Wettlin to collect contributions and
write checks on Local 6 Fund's account, however , are quite general in
scope. Wettlin would have us construe these terms narrowly, in effect
establishing it as a mere depository of Local 6 Fund assets. See IT
Corp. , 107 F.3d at 1421.
We are inclined to agree that ERISA does not consider as a fiduciary
an entity such as a bank when it does no more than receive deposits from
a benefit fund on which the fund can draw checks. The allegations in the
amended complaint, however, do not describe Wettlin's role as so
circumscribed. Rather, the amended complaint alleges that the Board
delegated to defendant the "day to day responsibility to control,
manage, hold, safeguard, and account for the Fund's assets and
income."
Moreover, the contract provides that Wettlin is to "[r]eceive
request for benefits from employees and take appropriate action
thereon." Notably lacking in the record is a description of the
various benefits that are available and what actions the parties have
considered to be "appropriate."
At this stage we are left with substantial doubt that there exist no
facts that might establish that Wettlin did indeed exercise such
authority and control over the management and disposition of Local 6
Fund assets so as to come within the statutory definition of a
fiduciary. Further development is required and on this record we cannot
say that, as a matter of law, Wettlin is not a fiduciary. The amended
complaint does state a claim and the case should not have been dismissed
at the pleading stage.2
2.
Because the issue was not raised in the District Court, we need not
consider the Board's alternative ar gument that Wettlin is nevertheless
liable as a party in interest under 29 U.S.C.SS 1106(a)(1)(D) and
1132(a)(3). See Harris Trust and Savings Bank v. Salomon Smith Barney
Inc., 530 U.S. ___, 120 S.Ct. 2180 (2000)
The Order of the District Court will be reversed and the case will be
remanded for further proceedings in accordance with this Opinion. A True
Copy: Attest: Clerk of the United States Court of Appeals for the Third
Circuit .
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