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GILLIAM v. EDWARDS

June 9, 1980

THOMAS GILLIAM, JR., Plaintiff,
v.
THOMAS F. EDWARDS and NORTH JERSEY ASPHALT WORKERS LOCAL 889 PENSION AND WELFARE FUND, Defendants.



The opinion of the court was delivered by: FISHER

Under central scrutiny in this pension fund controversy are the splintered employment responsibilities of defendant Thomas F. Edwards. At crucial times, Edwards wore three job hats, simultaneously serving as paid administrator of defendant North Jersey Asphalt Workers Local 889 Pension and Welfare Fund, trustee of the Fund, and business manager of Local 889, Laborers' International Union of North America, parent union of the Fund. At the nub of this alleged conflict of interest is a December 12, 1974 contract between Edwards and the Fund hiring him as administrator and cementing his triple connection. Plaintiff, Thomas Gilliam, Jr., union member and participant-beneficiary of the Fund, focuses on the contract to allege Edwards' violation of federal statutory (ERISA) *fn1" and common law fiduciary standards as well as the contract's unconscionability. The defendants answer by denying each claim and affirmatively raising the statute of limitations. *fn2" Characterizing this action as "politically motivated," *fn3" defendants spotlight Edwards' administrative competence and compliance with ERISA and state law requirements to support the contract's validity. Bench trial complete, I enter findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).

Local 889 is a labor union which provides workers for the asphalt industry who are primarily engaged in paving roads. Defendant Fund provides welfare and pension benefits for Local 889 members. The Executive Board of the union local is responsible for properly conducting its affairs in accordance with the constitution. UNIFORM LOCAL UNION CONSTITUTION OF THE LABORERS' INTERNATIONAL UNION OF NORTH AMERICA, art. IV, § 3(H)(11) (1976). Its seven members include the president, vice-president, recording secretary, and business manager. UNIFORM LOCAL UNION CONSTITUTION, art. IV, § 3(H)(1)-(2). The Fund, originally established in trust by the November 7, 1951 Agreement and Declaration of Trust, is administered by a board of four trustees. The union and the management each selects two trustees as employee and employer representatives respectively.

 From 1961 to June 1976, defendant Edwards served both as Local 889's business agent and union trustee. By July 1976, after a contested election for business manager, Edwards was voted out of office; William Blackwell, the victor, also became the new union trustee. For a period, Thomas Parsonnet, counsel to both the Local and the Fund, was Edwards' co-trustee for the union, until his resignation in December 1974. A close relationship developed between them, Edwards respecting Parsonnet as "the best union lawyer there was in the state." *fn4"

 Years before he became paid Fund administrator by the December 12, 1974 contract, Edwards actually managed the Fund without compensation. He became Fund manager in 1967 and performed basically the same duties prior and subsequent to his official employment by the Fund. In a typical pre-December 1974 work day, Edwards discharged both union and Fund responsibilities. As business manager, Edwards normally arrived at the union office by 6 to 6:30 a.m. to assign work to the men. He ventured into the field to check work progress or smooth problems between 8 and 9 a.m., returning to the offices between 11 and 11:30 a.m. *fn5" Edwards then spent a healthy portion of the afternoon regulating the Fund and advising or assisting its participants. His tasks included overseeing and implementing the separate funds, determining eligibility and benefit payments, explaining to participants their rights and benefits, authorizing the investment of Fund monies, checking the records and books, and mediating between participants and doctors or hospitals.

 As business agent, Edwards received compensation from the union, making no money by field work in the asphalt industry. Although his net (take-home) weekly salary was $ 250, his pay actually exceeded that amount since the union paid his taxes. Further, the union, as Edwards' employer, contributed to the Pension and Welfare Fund on his behalf until he was hired as Fund administrator, and provided his all-expenses-paid business use of a union car. For periods in 1974, Edwards received no pay from the union since funds were low, but he fully expected future remuneration. Edwards eventually brought a state court action against the union, claiming $ 7,200 in back wages and salary, and $ 15,000 in severance pay. In settling this case, he accepted $ 15,000, a sum covering his entire back claim and over half of his severance claim. Edwards' reported gross earnings were $ 15,800 in 1972 and $ 16,559.46 in 1973.

 Crucial are the events culminating in Edwards' December 12, 1974 contract with the Fund. At a July 18, 1974 meeting of the Fund Board of Trustees, Edwards asked the Board to consider paying him as Fund administrator-manager. The trustees unanimously agreed, but postponed further discussion pending "legal clarification" by absent trustee Parsonnet. Apparently, management trustees A. Spencer Marsellis and Robert C. Bossert had discussed the payment possibility with Edwards prior to the July 18th meeting; Marsellis and Bossert even broached the topic between themselves before Edwards spoke to them, noting his work for the Fund merited monetary reward.

 At the August 15, 1974 trustees meeting, there ensued a discussion about establishing a permanent administrator, Edwards claiming that he already performed many of those duties without pay. Edwards introduced a resolution passed by an indeterminable percentage of the union membership at an August 14, 1974 meeting, indicating that the requirements of his business manager position left him time to act for the Fund and approving his part-time employment as Fund manager "at such (s)alary as he can arrange for." Parsonnet noted the validity of Edwards' administrative role under present law but mentioned the possible need for reappraisal with the enactment of new pension legislation (ERISA). Edwards was aware of its pendency. A motion that Edwards be employed as administrator at a weekly salary of $ 200 was then passed. Edwards, who remains to date Fund administrator, has since enjoyed weekly increases to $ 212, effective April 1, 1977, and to $ 225, effective April 1, 1978. Edwards' status as paid Fund administrator was no secret among the membership, yet no one objected to his involvement until June 1976. Edwards generally performed his Fund duties competently and comprehensively.

 Parsonnet then sculpted the document, trustees Marsellis and Bossert relying upon him to properly and protectively draft the contract for the Fund. Prior to Parsonnet's finalizing the contract, Edwards discussed but did not author the actual language of its provisions with him. Edwards, without an independent attorney in this matter, relied upon Parsonnet to guard both his and the Fund's interests. Securing a self-advantageous agreement was a conscious concern of his.

 By contract dated December 12, 1974, the Fund hired Edwards as its administrator for a weekly salary of $ 200 for five years. As prerequisites to agreement, the Fund recognized Edwards as a "part-time employee" of Local 889 and acknowledged his abilities and knowledge of Fund beneficiaries. The Board largely controlled Edwards' salary adjustments; increases, necessarily justified by cost-of-living escalations, required negotiations with the Board. Edwards' incurred administrative expenses received outright reimbursement. Only Edwards had an option to renew for an additional five years upon 90 days written notice to the Board. Further, he alone retained termination rights, effective upon 90 days written notice to the Board. There is no provision for reciprocal notice by the Board. Marsellis, Bossert, and Walker signed the contract as approving trustees.

 Walker executed Edwards' contract as the duly appointed Fund trustee replacement for the departed Parsonnet. By September 25, 1974 resolution, the Executive Board empowered Edwards to name or change trustees. Edwards thereafter appointed Walker, who attended trustee meetings prior to Parsonnet's resignation, effective December 5, 1974 and accepted by the Board of Trustees on December 12, 1974. The minutes of the January 16, 1975 Board meeting list Walker as a trustee; they further note the Board's acknowledgment of a letter from Local 889 appointing Walker as union trustee. Walker's appointment was common membership knowledge, yet no one disputed it until June 1976.

 I

 Threshold Questions of Governing Law: ERISA's Applicability, Effective Date, and Relation to State Law

 The complexity of ERISA's design mandates careful exploration of its jurisdictional requirements and interaction with state law. Candidates for ERISA coverage must initially measure up to the Act's basic legal requirements, primarily contained in §§ 1002 & 1132. Next to be examined is the extent of ERISA's infiltration, if any, into this suit as the governing law, dependent upon the date and nature of relevant litigation events. 29 U.S.C. §§ 1114 & 1144. Whether a patchwork of state and federal authorities will control the action's outcome state or other federal law filling any spaces left by ERISA's self-confined application hinges upon this penetration finding.

 The instant parties and pension plan satisfy the first set of fundamental ERISA qualifications. A declared ERISA policy is to protect "the interests of participants in employee benefit plans and their beneficiaries . . . by establishing standards of conduct, responsibility, and obligation for (their) fiduciaries . . .. " 29 U.S.C. § 1001(b). Section 1109 provides for the personal liability of plan fiduciaries who breach any of their duties. This court has exclusive jurisdiction of this action without respect to the amount in controversy or the citizenship of the parties. 29 U.S.C. § 1132(e)(1) & (f). The Fund is a covered employee benefit plan. 29 U.S.C. § 1002(3). Plaintiff Gilliam, a participant and beneficiary of the Fund, 29 U.S.C. § 1002(7) & (8), is empowered to bring this action for fiduciary breach pursuant to ERISA's civil enforcement provisions. 29 U.S.C. § 1132(a)(2) & (3). Edwards, as fiduciary in the roles of Fund administrator and trustee, 29 U.S.C. § 1002(21)(A), is a party in interest. 29 U.S.C. § 1002(14)(A).

 ERISA's stucco scheme of effective dates necessitates a secondary determination of its application and activation. ERISA fiduciary provisions generally go into effect on January 1, 1975. 29 U.S.C. §§ 1114(a) & 1144(a). Exceptions, however, exist. Section 1106, defining the prohibited transactions plaintiff attributes to Edwards, invites one. Pursuant to the transition rule of § 1114(c)(4), § 1106 shall not apply

 
(4) Until June 30, 1977, to the provision of services . . . between a plan and a party in interest
 
(A) under a binding contract in effect on July 1, 1974 (or pursuant to renewals of such contract), or
 
(B) if the party in interest ordinarily and customarily furnished such services on June 30, 1974, if such provision of services remains at least as favorable to the plan as an arm's-length transaction with an unrelated party would be and if such provision of services was not, at the time of such provision, a prohibited transaction (within the meaning of section 503(b) of Title 26) or the corresponding provisions of prior law . . . .

 The question thus arises whether ERISA, with a general effective date of January 1, 1975 or an exceptional date of June 30, 1977, governs a contract consummated prior to either date on December 12, 1974. If ERISA applies, when will its strictures rouse?

 Judge Lacey, in a pretrial memorandum opinion in this action, has already answered both inquiries by upholding ERISA control of Edwards' contract as of January 1, 1975. Gilliam v. Edwards, No. 78-1633 (D.N.J. April 2, 1979) (denying defendants' motion to dismiss the complaint for lack of subject matter jurisdiction for failure to state an ERISA claim). The key to ERISA applicability is § 1114(c). Although ERISA explicitly disclaims any effect upon acts prior to January 1, 1975, 29 U.S.C. §§ 1144(b)(1) & 1114(a); Malone v. White Motor Corp., 435 U.S. 497, 499 n. 1, 98 S. Ct. 1185, 1187, 55 L. Ed. 2d 443 (1978), § 1114(c)(4) expressly breaks through the technical barrier of January 1, 1975 effectiveness to use 1974 litigation events as guides to ERISA's bearing upon § 1106 claims. Examining ERISA's statutory structure and legislative intent, Judge Lacey reasoned:

 
Section 1114(c) states that Sec. 1106 shall not apply to binding contracts signed before July 1, 1974 until July 1, 1977. This means that a contract in effect on July 1, 1974, that violates the provisions of Sec. 1106 became unlawful on July 1, 1977. It does not mean that the contract is forever exempt from ERISA, but only that the moment of illegality was delayed. As a corollary, contracts signed between July 1, 1974 and December 31, 1974 were required to comply with Sec. 1106 on January 1, 1975.

 Gilliam v. Edwards, supra, at 4 (emphasis added).

 Thus, Edwards' contract, signed on December 12, 1974, fits the Lacey corollary and triggers ERISA's general effectiveness. ...


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