Plaintiff Robert J. Coar has brought this action against defendants Joseph Kazimir, Rocco Morongello, William Levine, Donato DeSanti, and Robert Dudik, in their capacities as trustees of the Pension Fund of Mid-Jersey Trucking Local 701 ("the Fund"), and against the Fund itself. Among the relief Coar seeks is a declaration that defendants' actions in withholding his vested pension benefits and applying them as a set-off to his liability to the Fund violated the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.; an injunction preventing further withholding of his benefits; and dmamges equal to the amount of pension benefits heretofore withheld.
See Amended Complaint P18. Defendants have counterclaimed seeking a declaratory judgment that their withholding of Coar's pension benefits because of his breach of fiduciary duty was permitted by ERISA. Answer to Amended Complaint P21. Presently before the court are the parties' cross-motions for summary judgment on the issue of whether defendants could withhold Coar's pension benefits and apply them as a set-off to his liability. For the reasons which follow, it is clear that they could not.
II. Factual Background
The facts underlying this action are complex and need only be summarized briefly here.
Coar was one of two lifetime trustees of the Fund. In 1982, he and his co-trustee, Frank Scotto, entered into a contract on behalf of the Fund under which the Fund agreed to transfer $ 20 million for a period of thirty years to Omni Funding Group ("Omni"), a Florida-based mortgage company owned by Joseph Higgins. Id. at 140-141. In exchange for directing this investment, Coar and Scotto, along with Fund general counsel Kenneth Zauber, solicited kickbacks from Higgins and his partner in the scheme, David Friedland, former general counsel to the Fund. Id. at 153. In 1987, Coar, Scotto, and Zauber were convicted of mail and wire fraud and conspiracy to receive kickbacks in violation of the Racketeering Influenced Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(d). Friedland, also named in the indictment, became a fugitive and, upon his arrest, pleaded guilty. Coar's conviction for conspiracy to receive kickbacks was affirmed on appeal, although his convictions for mail and wire fraud were vacated because the government had not proved that the Fund had suffered a money or property loss. He served 18 months in prison and has since been released.
The actions of Coar and his co-conspirators also gave rise to a civil action when the Fund brought claims including, inter alia, a claim for breach of fiduciary duty owed to the Fund in violation of ERISA and civil RICO. Pension Fund-Mid Jersey Trucking Industry Local 701, et al. v. Omni Funding Group, Inc., No. 84-4332(GEB). On September 13, 1990, the Hon. Garrett E. Brown granted partial summary judgment as to liability only against Coar, Zauber, Friedland, Scotto, Higgins and Omni on, among other things, that count of the complaint alleging breach of fiduciary duty under ERISA. Subsequently, following a damage hearing, Judge Brown entered judgment against those defendants finding them to be jointly and severally liable to the Fund in the aggregate amount of $ 122,143,548.00. See Second Supplemental Affidavit of Roger B. Kaplan (hereinafter "Kaplan Second Suppl. Aff.), Exh. Q and R.
This action arises out of defendants' decision, in April, 1991, to withhold pension benefits which Coar had been receiving since 1982 and apply them as a set-off for the damages for which he was liable to the Fund as the result of his breach of fiduciary duty. See Letter dated April 16, 1991 from Frederic Becker to Robert Coar, Affidavit of Roger Kaplan, dated February 27, 1992 (hereinafter "Kaplan Aff."), Exh. I. Defendants' decision came after Coar's liability to the Fund had been established in the civil case, but before there had been a judgment reflecting the monetary loss suffered by the Fund and, in particular, the loss to the Fund attributable to Coar's breach of fiduciary duty, a fact to which Coar attributes much significance. See n. 7, infra. It is not disputed that Coar was a fiduciary who owed a duty to the Fund and breached that duty. Neither is it seriously disputed that the Fund sustained a loss as a result of the kickback scheme in which Coar was a principal player.
Defendants claim that they were entitled to withhold Coar's pension benefits by virtue of section 409(a) of ERISA, 29 U.S.C. § 1109(a).
Essentially, section 409(a) renders a person who breaches a fiduciary duty to a pension fund personally liable for losses caused by or profits earned from such breach and subjects him or her "to such other equitable or remedial relief as the court may deem appropriate. . . ." 29 U.S.C. § 1109(a). Coar, on the other hand, contends that defendants' action violated both the anti-alienation provision of section 206(d)(1) of ERISA, 29 U.S.C. § 1056(d)(1), and ERISA's anti-forfeiture provision, section 203(a), 29 U.S.C. § 1053(a).
His primary argument is that the withholding of pension benefits without a money judgment conclusively establishing a "loss" to the Fund, although couched in terms of a set-off, was effectively a forfeiture. Thus, he contends, the court's analysis of whether his pension benefits were properly or improperly withheld should focus on the anti-forfeiture provision of section 203 of ERISA rather than the statute's anti-alienation provision, although that provision, he claims, was violated as well.
Resolution of these competing contentions requires a determination of the nature of the interplay between ERISA's remedial provisions relating to breaches of fiduciary duty and its anti-alienation and anti-forfeiture provisions.
A. Alienation versus Forfeiture
Coar's attempt to convince this court that the Fund terminated his benefits "as further punishment for the breach of fiduciary duty for which he was convicted criminally," therefore implicating ERISA's anti-forfeiture provision rather than its anti-alienation provision, must fail. Pl. Br. at 17. The March 16, 1991 letter to Coar stated quite clearly that his pension benefits would be withheld "to satisfy [his] liabilities to the Pension Fund for [his] breaches of fiduciary duty. . . ." It is plain at least from the language used by defendants that they determined to withhold the pension benefits as a set-off against Coar's liability to the Fund and not to permanently deny benefits as punishment for his criminal actions.
Winer v. Edison Brothers Stores Pension Plan, 593 F.2d 307, 312 (8th Cir. 1979), which Coar cites in support of his position, is inapposite. Winer involved a forfeiture of pension fund benefits by operation of a "bad boy" clause which provided for the automatic disqualification from benefits of any plan member who had been dishonest with respect to the assets of or in a transaction on behalf of the corporation. The Fund in Winer made no claim of set-off vis-a-vis any liability to the Fund; rather, it claimed a forfeiture of the very nature sought to be eradicated by section 203(a) of ERISA, 29 U.S.C. § 1053(a). See Winer, 593 F.2d at 311 (citing the legislative history of the anti-forfeiture provision of ERISA). Coar cites no further authority for his invocation of ERISA's anti-forfeiture provision and, indeed, there appears to be none. Because the intention of defendants in withholding Coar's benefits was clearly to offset his liability to the Fund, and wholly aside from whether such set-off was or was not legally supportable at that time, the relevant section of ERISA in determining the propriety of the Fund's actions must be section 206(d)(1), 29 U.S.C. § 1056(d) (1), the anti-alienation provision.
B. Withholding Pension Benefits to Satisfy a Liability to the Fund for Breach of Fiduciary Duty
Having determined that defendants' action is appropriately reviewed in light of ERISA's anti-alienation provision, the court must determine whether the remedy of set-off, comprehended within the "such other equitable relief as the court may deem appropriate" language of section 409(a), acts as an exception to the general prohibition against the alienation of such benefits.
In this regard, the Supreme Court's opinion in Guidry v. Sheet Metal Workers National Pension Fund, 493 U.S. 365, 107 L. Ed. 2d 782, 110 S. Ct. 680 (1990) is highly instructive.
As an initial matter, it bears mention that Guidry expressly left open the matter now before the court. Id. at 365. Because the pensioner in that case had breached a fiduciary duty to the union itself rather than to the Fund, the Court found section 409(a) inapplicable and specifically refused to decide whether the remedial provisions of 409(a) supercede the bar on alienation in section 206(d)(1). Resisting the "natural tendency to blur the distinction between a fund and its related union," the Court looked instead to section 501(b) of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA), 29 U.S.C. § 501(b).
There are similarities, however, between section 501(b) of the LMRDA and section 409(a) of ERISA, thus rendering much of Guidry 's reasoning and analysis apt to the instant matter. Compare LMRDA section 501(b), 29 U.S.C. § 501(b) ("or other appropriate relief") with ERISA section 409(a), 29 U.S.C. § 1109(a) ("and shall be subject to such other equitable or remedial relief as the court may deem appropriate"). And, importantly here, the Court's interpretation of section 206(d) (1) is right on point. Thus, Guidry 's discussion of the prohibition on the assignment or alienation of pension benefits set forth in section 206(d)(1) of ERISA is extremely important for this court's purposes.
The Court noted that section 206(d) (1) is clear and reflects a "considered . . . decision to safeguard a stream of income for pensioners (and their dependents, who may be, and perhaps usually are, blameless) even if that decision prevents others from securing relief for the wrongs done to them." Id. Thus, the Court continued, courts should generally be loathe to create equitable exceptions to unqualified statutory pronouncements. Guidry, 493 U.S. at 376.
The creation of such exceptions, in our view, would be especially problematic in the context of an antigarnishment provision. Such a provision acts, by definition, to hinder the collection of a lawful debt. A restriction on garnishment therefore can be defended only on the view that the effectuation of certain broad social policies sometimes takes precedence over the desire to do equity between particular parties. It makes little sense to adopt such a policy and then refuse enforcement whenever enforcement appears inequitable. A court attempting to carve out an exception that would not swallow the rule would be forced to determine whether application of the rule in particular circumstances would be "especially" inequitable. The impracticality of defining such a standard reinforces our conclusion that the indentification of any exception should be left to Congress.