F. Ray Marshall, Secretary of Labor v. George Snyder, Irving Rosenzweig, Anthony Calagna, Clarence Clarke, James Isola, William Snyder, Joseph Grippo, Benjamin Petcove, General Teamsters Industrial Employees Local 806, 806 Record Processors, Inc., 572 F.2d 894, 2d Cir. (1978)
F. Ray Marshall, Secretary of Labor v. George Snyder, Irving Rosenzweig, Anthony Calagna, Clarence Clarke, James Isola, William Snyder, Joseph Grippo, Benjamin Petcove, General Teamsters Industrial Employees Local 806, 806 Record Processors, Inc., 572 F.2d 894, 2d Cir. (1978)
F. Ray Marshall, Secretary of Labor v. George Snyder, Irving Rosenzweig, Anthony Calagna, Clarence Clarke, James Isola, William Snyder, Joseph Grippo, Benjamin Petcove, General Teamsters Industrial Employees Local 806, 806 Record Processors, Inc., 572 F.2d 894, 2d Cir. (1978)
2d 894
1 Employee Benefits Ca 1573
Mark Lemle Amsterdam, New York City (Rubin, Hanley & Amsterdam, New
York City, of counsel), for appellants General Teamsters Industrial Emp. Local
806 and 806 Record Processors, Inc.
Michael Lesch, New York City (Shea, Gould, Climenko & Casey and Arthur
D. Felsenfeld, New York City, of counsel), for appellants Calagna, Clarke,
Grippo, Isola, Petcove and William Snyder.
Charles F. Murphy, New York City (Murphy & Maviglia, New York City, of
counsel), for appellants George Snyder and Rosenzweig.
The Secretary of Labor commenced the present action on January 20, 1977,
under the Employee Retirement Income Security Act of 1974 (ERISA), 29
U.S.C. 1001, et seq., against certain present and former trustees of three
employee benefit plans of General Teamsters Industrial Employees Local 806,
against Local 806, and against 806 Record Processors, Inc., a corporation all of
the outstanding stock of which is owned by one of three employee benefit
plans, Local 806 Teamsters Health and Welfare Fund. The charge of the
complaint is that the present and former employee benefit plan trustees have
permitted and are permitting the expenditure of unwarranted sums of money
from the plan assets, including (a) making payments totalling about $1,000,000
to defendant trustee George Snyder (allegedly an amount far in excess of
reasonable compensation for any services he actually rendered); (b) expending
about $380,000 to refurbish office quarters for the Union and for the Welfare,
Annuity and Pension Plans, in violation of the fiduciary duties imposed by 29
U.S.C. 1104(a)(1)(A) and (B); and (c) by transferring $300,000 of Welfare
Plan assets to defendant 806 Record Processors, Inc., ("RPI") in exchange for
all of its stock, and then causing RPI to lend $290,000 to Local 806. The
complaint prayed for an order removing from fiduciary office each defendant
presently serving as a trustee and enjoining each individual defendant from
further serving as a fiduciary of any of the employee benefit plans or of any
other employee benefit plan for at least five years; the court was asked to
supervise the installation of successor trustees independent of the present
defendants for each of the three plans, meanwhile appointing an interim
receiver to assume the duties of the defendant trustees pendente lite ; the
complaint further prayed for the rescission of the transactions by which assets
of the Welfare Plan were transferred to RPI, for the dissolution of RPI, and an
accounting of its assets, and for a judgment against defendants for restitution,
including lost profits, of all amounts paid in connection with the matters alleged
on and after January 1, 1975 from the Welfare or Pension Plan assets to the
extent that they exceeded the reasonable expense of administering the plans.
9
"with
the only exception that 806 Record Processors, Inc. may continue to make
salary payments for services actually rendered to defendants Clarence Clarke,
Anthony Calagna, James Isola and William Snyder in amounts not exceeding the
following:
10
Anthony Calagna
Clarence Clarke
James Isola
William Snyder
Maximum
Per
Week
$750
$300
$825
$600"
11 order further provided that the books of the funds and of RPI should be made
The
available for inspection and copying to the Secretary's attorneys or agents during
normal business hours on one day's notice.
12
13
While, as Judge Pratt recognized, the relief that he granted was drastic, the
evidence inescapably led Judge Pratt to his conclusion (430 F.Supp. at 1232)
that, "The inherent conflict of interest and potential for self-dealing which result
from the union officers' controlling both the Plans and RPI, which is the
administrative agent of the Plans, coupled with the actual conduct of the
defendants since the consent order, and when interpreted in the light of the
serious charges of misappropriation of trust fund monies alleged in the
complaint, require immediate and drastic action by the court in order to
preserve from further dissipation the assets of the Plans for the benefit of their
participants and beneficiaries." The orders appealed from must therefore be
affirmed. It may be that, inasmuch as the trustees of the Plans are defendants in
the action, effective relief can be granted without joinder of the three plans as
parties to the proceeding. The plans, however, are clearly proper if not
indispensable parties to the proceeding, and it would appear that if, as may be
unavoidable, the Secretary will press for very broad relief affecting many
aspects of the three plans and their administration, they should be joined as
proper parties defendant which may later become necessary parties. Joinder of
the plans as parties will provide assurance that complete relief can be accorded
among those already parties, and including the plans themselves, as Rule 19(a)
of the Rules of Civil Procedure contemplates, and it is clear, of course, that the
plans may properly be joined under Rule 20(a) in any case, even though they
may not be interested in obtaining or in defending against all of the relief
demanded.
14
It is not necessary to review the facts in detail. Local 806 had approximately
2,162 dues paying members in 120 shops of 102 employers. The dues income
of Local 806 was about $350,000 a year. There were 2,040 members of Local
806 who were participants in the Welfare Fund, and it has been estimated that
there could be as many as 10,000 potential beneficiaries of the Welfare Fund.
The Welfare Fund receives about $1,000,000 a year in employer contributions.
The Pension and Retirement Fund (hereafter the Pension Fund) covered 1,032
members, and receives approximately $300,000 a year in employer
contributions. The Annuity Fund receives about $75,000 a year of such
contributions. Claims processed for the Welfare Fund approximate 200 to 300 a
month, and there are 74 pensioners.
15
For its services in administering the three plans RPI received about $300,000 a
year, $25,000 a month, from the Welfare Plan, and received two or three
thousand dollars a month from the Pension Fund. The record is clear that only
one RPI employee worked exclusively on Plan matters, an experienced medical
claims examiner, who received $2,000 for her work from February 7 to April
19, 1977, a period during which, for example, Calagna, Isola and Snyder were
paid from three times to five times as much as the claims examiner, and a
period in which Clarke was paid $3,600. In addition there were four clerks on
the office payroll of RPI, and there had been one other clerical employee. None
of the four clerks devoted full time to RPI's work for the three plans; all did an
indeterminate amount of work for Local 806, although they were paid nothing
by Local 806. There was in addition a man on the payroll of RPI who appears
not to have rendered any service to it, but to have acted as chauffeur for
defendant George Snyder.
16
Constance Mavroson was employed by Local 806; paid wholly by Local 806,
she acted as officer manager and bookkeeper for all five organizations, the
Local, the three plans, and RPI. The testimony of the medical claims examiner
and the office manager demonstrates that they and their clerical assistants were
in responsible charge of the administration of the three plans so far as
concerned all matters internal to the office, such as following collections,
processing claims, and effecting disbursements. While the clerical employees
received all their compensation from RPI, the evidence of the office manager
indicates that they did work on the affairs of the Local as well as work on the
various plans. The Local paid salaries only to Constance Mavroson ($320 a
week) George Arth ($125 a month), Rosario Albany ($125 a month), and James
Kant ($400 a month as back-pay compensation).
17
Neither William Snyder nor Calagna nor Isola nor Clarke received any
compensation from Local 806. William Snyder is a trustee of the Annuity Plan,
a member of the executive board of Local 806 and its recording secretary.
Calagna is president and one of the three directors of RPI and president of
Local 806, as well as a member of its executive board. Isola is a member of the
executive board of Local 806 and its vice president. Clarke is a trustee of the
Pension Plan. These four men received all of their compensation from RPI.
Between February 7th and April 19th, 1977, Calagna received $6600, $5100 as
salary and $1500 as expenses. In the same period Isola received $10,875,
$9,225 as salary and $1650 as expenses. William Snyder over the same period
received $6,150, $4500 as salary and $1650 as expenses. Clarke over the same
period received $3600, $2100 as salary and $1500 as expenses. In the case of
all four men the expense amounts were exactly $150 in each pay period.
18
compensation paid the four men; plainly Calagna, Isola and William Snyder,
received compensation on an executive scale. The compensation of Calagna,
Isola and William Snyder, at various dates between February and April 1977,
ranged between an annual rate of $42,900 a year and an annual rate (in the
latter part of Isola's weeks) of $27,300. Clarke was being paid at the rate of
$15,600 a year. Finally, the testimony is clear that the four men worked on
Union matters as well. The testimony affords no means for comparing the value
of what was done for RPI with the value of what was done for Local 806 as a
labor organization. However, it is evident that whatever union representation
and service was rendered to the shops which the four men served was rendered
to those shops by these men; there is no evidence that any of the union
representation and service to those shops was rendered to any degree by any
other personnel of Local 806.
19
20 very difficult to separate the entire process. We may be talking about wages in
"It's
one breath for two minutes and go on to pension. We are not getting anywhere there.
We'll move over to pension and welfare and jump back to wages. It's very difficult
and you can't keep changing hats in midstream; you can't say, wait a minute, if you
want to address me now as an officer in the local union, but you can't address me as
an officer if we are discussing pension and welfare, it floats but I would say on the
whole the great majority of time was spent with fringe benefit plan and explaining
them at the negotiating table."
21
"Q At the time this switch occurred were there any changes in your job activities?
22
A Not of any big degree."
23
24
There was no escape from the court's conclusion that defendants caused RPI to
make salary payments to Calagna, William Snyder, Isola and Clarke after
February 4, 1977, for services actually rendered to Local 806 as well as to RPI,
and that such payments were violative of the consent order which excepted only
salary payments for services actually rendered to RPI.
25
One of the charges made in the complaint was that $380,000 had been
expended to refurbish office quarters for the Union and for the Welfare,
Pension and Annuity Funds, and that the whole expense had been charged to
the Funds. Until a reallocation was made, RPI paid the entire rent for the
refurbished premises. A reallocation of the rental was made largely under the
direction of the accountant employed by the several plans, RPI and Local 806;
he was to some extent assisted by the office manager. The result of the
reallocation was to assign 43% Of the space and rent to RPI, 20% To the
Welfare Plan, 20% To the Pension Plan, nothing to the Annuity Plan and 17%
To Local 806. No basis for the allocation was made to appear. The dual roles
played by so many of the employees of RPI and Local 806, the uncertainty as to
the distribution of their time between the work for their two employers, the
failure to explain how space could be allocated both to RPI and to the plans
when RPI was responsible for plan administration, combine to deprive the
allocation of any intrinsic validity.
26
The drastic relief granted fairly reflects the nature and the magnitude of the
evasions of the command of the consent order and, more important, of the
statute itself.
27
plan.
28
The transactions by which RPI paid the salaries of William Snyder, Anthony
Calagna, James Isola and Clarence Clarke as well as those of two field
representatives, Gonzalez and Kremens, for doing the work of Local 806 as
well as a certain but indefinite amount of field work for RPI were, as Judge
Pratt concluded, prohibited transactions within the meaning of 29 U.S.C.
1106(a)(1) (C). The payments made to DeVuone, whose only work, as
described in the evidence, was undefined messenger work and acting as
personal chauffeur for defendant George Snyder, was, manifestly, a prohibited
transaction.
29
Defendants argue that the transactions are exempt from the proscription of
1106 by reason of the provisions of 1108(b)(2). That subsection provides that
the prohibitions of 1106 do not apply to
30
"Contracting
or making reasonable arrangements with a party in interest for office
space, or legal, accounting, or other services necessary for the establishment or
operation of the plan, if no more than reasonable compensation is paid therefor."
31
Defendants also point to that part of Section 1108(c)(3) which provides that
Section 1106 shall not be construed to prohibit a fiduciary from
32
"serving
as a fiduciary in addition to being an officer, employee, agent, or other
representative of a party in interest."
33
Litton, 1939, 308 U.S. 295, 306-307, 60 S.Ct. 238, 84 L.Ed. 281; Tomarkin v.
Vitron Research Corp., 2nd Dept. 1960, 12 A.D.2d 496, 206 N.Y.S.2d 869; 3
Fletcher, Cyclopedia of the Law of Private Corporations (rev.perm.ed.1975)
362, 383. And, finally, there is no reasonable basis on which it could be found
that a payment that fully compensates for two separate services can be
supposed to be no more than a reasonable compensation for each service taken
separately.
34
35
36 to enjoin any act or practice which violates any provision of this subchapter, or
"(A)
(B) to obtain other appropriate equitable relief (i) to redress such violation or (ii) to
enforce any provision of this subchapter; . . ."
37
The legislative history of ERISA makes it clear that, as the House report on
HR2 indicates,
38 intent of the Committee is to provide the full range of legal and equitable
"The
remedies available in both state and federal courts and to remove jurisdictional and
procedural obstacles which in the past appear to have hampered effective
enforcement of fiduciary responsibilities under state law for recovery of benefits due
to participants." (H.Rep.No. 533, 93d Cong., 2d Sess., reprinted in (1974) 3
Senate Report No. 93-127 repeated the language of the House Report, in
reporting on S.4, 93d Cong.2d Sess., reprinted in (1974) 3 U.S.Code Cong. &
Admin.News, pp. 4639, 4871. Senate Report No. 93-383, reporting on S.1179,
in discussing the broad range of remedies proposed in the Senate Bill said (id.
4989):
40
"Also,
the bill specifically provides that a fiduciary may be removed through civil
action brought by the Secretary or participants or beneficiaries if he has violated any
of the specified fiduciary obligations, or is serving in violation of the criminal
conviction provisions. (The Attorney General also may bring an action to remove in
the latter case.) It is expected that a fiduciary (other than one serving in violation of
the criminal conviction provisions) may be removed for repeated or substantial
violation of his responsibilities, and that upon removal the court may, in its
discretion, appoint someone to serve until a fiduciary is properly chosen in
accordance with the plan."
41
The district court plainly had the power to appoint a receiver, Gordon v.
Washington, 1935, 295 U.S. 30, 37, 55 S.Ct. 584, 79 L.Ed. 1282, and the
appointment of a receiver in the present case was peculiarly appropriate to
arrest what was shown at the evidentiary hearing to be continuing conduct
violative both of the consent order and of the provisions of ERISA. The
injunctions of the consent order had not, on the evidence, been obeyed, and the
scale and circumstances of the ongoing expenditures threatened dissipation of
the assets of the employee benefit plans. Cf. Bookout v. First National
Mortgage and Discount Co., 5th Cir. 1975, 514 F.2d 757; Haase v. Chapman,
W.D.Mo.1969, 308 F.Supp. 399, 404; United States v. Mansion House Center
North Redevelopment Co., E.D.Mo.1976, 419 F.Supp. 85, 87; Securities &
Exchange Commission v. Capital Counsellors, Inc., S.D.N.Y.1971, 332 F.Supp.
291, 304.
42
For the reasons stated above it is concluded that the three employee benefit
plans should be joined as parties defendant, as they may be without difficulty
under 29 U.S.C. 1132(d)(1). In this case, in which the Secretary is the
statutory plaintiff and sues in the interest of the beneficiaries, it is neither
necessary nor appropriate that any individual beneficiaries be joined as parties.
However, as the case develops, it may be appropriate for the district judge to
provide notice to the members of Local 806 who participate in the plans.
43