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03/26/82 James P. Hoffa v. Frank E. Fitzsimmons and

March 26, 1982









Before WRIGHT, TAMM and EDWARDS, Circuit Judges.


Appeals from the United States District Court for the District of Columbia (D.C. Civil Action No. 76-00566).


Opinion for the court filed by Circuit Judge TAMM.


We are called upon to rule in this case on a variety of difficult questions involving the interrelationship of the laws of contract and trust. At stake is the interest of the estate of James R. Hoffa in the pension fund established by the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (Teamsters) for the benefit of certain officers and employees of the union. When Hoffa retired from the employ of the Teamsters in 1971, an agreement was entered into that purported to specify the amount to which he was entitled under the pension plan. The instant litigation concerns the enforceability of that document. The district judge ruled that Hoffa's estate could enforce the agreement and was accordingly entitled to damages for its breach. We agree with the district judge that the representatives of the Hoffa estate are entitled to enforcement, and we therefore agree that summary judgment in favor of the estate was appropriate; we grant such disposition on a ground slightly different, however, from that employed in the district court. We also differ slightly in the provision of an appropriate remedy to the Hoffa estate, although this matter is, as will be apparent below, of no great moment. Although we remand the case, the proceedings to follow in the district court will be mercifully brief. I. THE FACTUAL BACKGROUND

The facts of this case, though complicated, are not in dispute. James R. Hoffa *fn1 began in 1932 what was to be nearly a forty-year career of service with the Teamsters. Rising through the ranks, Hoffa became general president of the union in 1957, a position to which he was re-elected in 1961 and 1966. His career was not one unmarred by controversy; in 1964 Hoffa was convicted of two felonies, and in March of 1967 he entered the federal penitentiary at Lewisburg, Pennsylvania, to serve the resulting aggregate sentence of thirteen years. See Hoffa v. Saxbe, 378 F. Supp. 1221, 1223 (D.D.C.1974).

On June 19, 1971, while still incarcerated, Hoffa resigned as the head of the Teamsters. As the district judge noted, Hoffa's decision not to continue his jailhouse supervision of the union appears to have been prompted by several factors, including (1) pressure from the Teamsters' Executive Board, (2) his desire to receive the benefit of significant accrued pension rights payable on retirement, and (3) the possibility that withdrawal from active involvement in Teamsters activities might enhance the likelihood of his early departure from the cramped confines of Lewisburg. Hoffa v. Fitzsimmons, 499 F. Supp. 357, 359 (D.D.C.1980). At the time of his resignation, Hoffa and other officers and employees of the International Union were the beneficiaries of the employer-maintained pension plan known as the Retirement and Family Protection Plan for Officers and Employees of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (the Plan).

Under provisions of the Plan in 1971, *fn2 a beneficiary in Hoffa's position *fn3 had the unilateral option of taking his retirement benefits in one of two ways: he could either receive a lifetime annuity in an amount representing 100 percent of his average annual salary during the five-year period preceding retirement, or he could receive a single lump sum "Cash Termination Benefit" representing the estimated actuarial reserve necessary to fund the annuity to which he would otherwise have been entitled. *fn4 Shortly before Hoffa's resignation and retirement, his personal attorney entered into discussions with the trustee and administrators of the Plan with regard to Hoffa's rights under it. Hoffa elected to take the lump sum benefit option upon his retirement, and a written Agreement for Deposit (Agreement) was signed that reflected the understanding of the parties regarding Hoffa's entitlement under the Plan. *fn5

In electing to receive the lump sum benefit, Hoffa relied in large measure on the calculation by the Plan's actuary of the actuarial reserve balance that obtained in his case. Each year from 1961 until 1969, the Plan's administrators had delivered to Hoffa an annual statement that reflected his accrued actuarial reserve. The last such statement indicated that, as of June 30, 1969, Hoffa was entitled to roughly $1.61 million as a lump sum payment. *fn6 When Hoffa ultimately retired, the Plan's actuary determined that Hoffa was entitled to receive $1,745,141.217 as a lump sum benefit. The trustee and administrators of the Plan concede that the actuary acted in good faith in arriving at this figure and that in so doing he followed the then-prevailing interpretations of the Plan.8 In preparing the Agreement, Hoffa's attorney based its financial terms on the sum supplied by the actuary, and the attorney stated that he accepted without further question the accuracy of the 1971 calculation in light of its apparent proportionate accordance with the annual figures for 1961 to 1969.9 The Agreement stated that the trustee and administrators warranted that the amount listed as Hoffa's entitlement was "the correct amount due Hoffa under the Plan"10 and that the document as a whole was a "binding and enforceable contract ...."11

Because of certain restrictions on pension plan activity however, Hoffa could not immediately receive the entirety of his benefit at the time of his retirement. Section 401(a)(4) of the Internal Revenue Code, 26 U.S.C. § 401(a) (4) (1970), and implementing Treasury Regulations 1.401-4(a)(1) and (c)(1), 26 C.F.R. §§ 1.401-4(a)(1) and (c)(1) (1971), proscribed in 1971 and proscribe in similar form today qualified pension funds from discriminating in favor of highly paid officials at the expense of the members of the rank-and-file. These Treasury restrictions, which are designed to ensure the integrity of the particular pension arrangement, were incorporated in similar form by the Plan in its Article XII. Greatly summarized, in order to maintain a tax-exempt status, a pension plan could not and may not pay in an unrestricted fashion large lump sum termination benefits when the recipient is an officer or one of the twenty-five most highly paid employees of the employing entity; rather, Treasury Regulation 1.401-4(c) requires in such cases that portions of the sum be "restricted" for a specific period to ensure the capacity of the fund to meet other pension obligations.

Among the terms included in the Agreement were provisions intended to guarantee compliance with the Treasury norms. Under the arrangement worked out between Hoffa and the Plan, the entire sum due Hoffa was to be paid him on condition that the restricted amounts, as determined by the Plan, were placed in an escrow account with a third-party depository bank.12 The escrow arrangement was entered into, as counsel for the Hoffa estate contend, solely to comply with Treasury Regulation 1.401-4(c);13 on the other hand, the third-party escrow agent was employed, as counsel for the Plan note, solely to ensure that favorable tax treatment would inure to Hoffa's benefit.14

The Agreement thus provided that Hoffa was to be paid a lump sum termination benefit of $1,745,141.21 and in turn required that Hoffa deposit the restricted portion, or an acceptable substitute, with the escrow bank. The administrators of the Plan, relying on their actuary's determinations, concluded that the government regulations required that $650,070.31 of the $1.75 million be restricted, and the Agreement incorporated that conclusion. It was also determined by the administrators and Hoffa's representative that it was necessary to release the escrowed amount in two installments; thus, the Agreement provided that roughly $190,000 was to be released as a first installment on July 1, 1974, and that the remaining $460,000 would be given Hoffa on January 1, 1976.15 Although the specific details are somewhat complex, the essence of the Agreement's escrow provisions was that the Plan's trustee and Administrative Committee were to authorize the bank to release the installments upon their determination that the lump sum payment conformed with the applicable Treasury regulations.16

The parties specified that the Agreement was fully integrated and that it was intended to delineate the rights and duties of the signatories as of June 19, 1971. Given his accommodation status at Lewisburg Penitentiary, Hoffa was unable to attend the closing of the Agreement on June 24, 1971; his son, however, acting under a power of attorney, accepted a check from the Plan and in turn deposited the restricted amount in the escrow account. All went like clockwork when it came time to consider release of the first installment in 1974; the Plan's trustee and Administrative Committee determined on July 1, 1974, that the lump sum distribution conformed with regulation § 1.401-4(c), and accordingly authorized the bank to release the first amount. The bank complied.

In 1975, fully a year before the remaining installment was to be released, the Internal Revenue Service (IRS or Service) entered the picture and clouded the tax-exempt status of the Plan. In that year the IRS rejected the Plan's interpretation of its own provisions as

In accordance with the IRS settlement, the administrators of the Plan, two weeks before the second escrow was to be released on January 1, 1976, instructed the bank20 not to release the last installment payment. On December 26, 1975, just five days prior to the date of scheduled release, Hoffa's representatives demanded that the Plan direct the bank to surrender the remaining escrowed amount. When the Plan administrators refused, this action ensued.

Appellee Hoffa's complaint, as finally amended, asserted four claims, one of which he voluntarily dismissed.21 The first count sought specific performance of the terms of the Agreement requiring the Plan's administrators to direct the depository bank to release the remaining escrow funds. Count III, which the district judge correctly noted was "closely related" to Count I,22 sought damages for the alleged breach by the Plan of the express warranties contained in the Agreement regarding the total amount due Hoffa. Count IV alleged that the Plan inaccurately computed the amount of Hoffa's lump sum benefit and that Hoffa was in fact entitled to over $450,000 more than the amount specified in the Agreement. By way of counterclaim, the Plan's administrators sought the recovery of the alleged overpayment made to Hoffa because of the confusion centering on the proper construction of the Plan.23

The district judge disposed of the case on cross-motions for summary judgment made by the parties. Hoffa sought summary judgment on the third count of his complaint, while the present appellants sought judgment in their favor on all three of the remaining counts of Hoffa's complaint and on their counterclaim. Rejecting the challenges to the Agreement proffered by the Plan's trustee and administrators, the district court held that the Agreement was a valid and enforceable contract and that appellants were obligated to adhere to its terms regardless of the allegedly incorrect construction of the Plan on which it was based. Appellants' counterclaim was dismissed in light of the dispositive nature of the Agreement. This appeal followed. II. ANALYSIS

Appellants renew in this court a number of arguments made in the district court and there rejected. As the district judge noted,24 the core of appellants' position is simply stated: they argue that the 1971 calculation of the lump sum benefit due Hoffa was incorrect and that the Agreement should not be enforced to accord Hoffa benefits in excess of those to which he was entitled. The district judge accepted Hoffa's assessment of the governing law and ruled that, regardless of whether the 1971 calculation was in error,25 the Agreement was binding on the Plan. Thus, even if we assume that Hoffa was overpaid by the terms of the Agreement as contrasted with the provisions of the Plan, the dispositive question we must face is the efficacy of the Agreement. Put most simply, appellants would have us disregard the warranties in the Agreement as null, while appellee prays for their enforcement.

The determination of the legal effect of the Agreement is helpfully subdivided into two levels of consideration: on one hand, there is the overriding question of whether an agreement such as this one can ever be effective where arguably inconsistent with the provisions of the trust instrument on which it is based. Secondly, assuming that such a "variation" is acceptable as a matter of theory, we must determine whether this particular agreement is a binding and enforceable contract. Appellants argue in this regard that: (1) the Agreement is voidable because of a mutual mistake of material fact; (2) enforcement of the Agreement by Hoffa would constitute a violation of his fiduciary obligations to the Plan; and (3) the Agreement is voidable because of a lack of consideration flowing from Hoffa. Finally, appellants contend that, even if the Agreement is otherwise valid, judicial enforcement is barred by the running of the statute of limitations. We will consider each of these arguments.

A. The Trust Issues

1. Is the Plan Bound By Its Commitment to Pay Hoffa $1.75 Million, Irrespective of Errors Allegedly Made in the ...

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