Board of Trustees of Teamsters Local 863 Pension Fund v. Foodtown, Inc. , 296 F.3d 164 ( 2002 )

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
7-17-2002
Bd Trustees 863 v. Foodtown Inc
Precedential or Non-Precedential: Precedential
Docket No. 01-2542
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PRECEDENTIAL
Filed July 17, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-2542
BOARD OF TRUSTEES OF TEAMSTERS LOCAL 863
PENSION FUND,
Appellant
v.
FOODTOWN, INC., MARTIN VITALE; RONALD GINSBERG;
HY SHULMAN; NICHOLAS D’AGOSTINO; GEORGE P.
FARLEY; JOSEPH AZZOLINA; VICTOR LARACCA;
GERARD NORKUS; RON DICKERSON; SYDNEY KATZ;
WILLIAMS MICHAS; DONALD NORKUS; EDMUND J.
PACZKOWSKI; JACK PYTLUK; MICHAEL ZIMMERMAN;
DAVID MANIACI; WILLIAM DAVIDSON; FOOD CIRCUS
SUPERMARKETS, INC.; NORKUS ENTERPRISES, INC.;
NORKUS, INC.; NORKUS FOODTOWN, INC.; DAVIDSON
SUPERMARKET, INC.; DAVIDSON BROTHERS, INC.;
FRANELEN, INC.; NICHOLAS MARKETS, INC.; FOOD
KING, INC.; WEST ESSEX FOODTOWN, INC.; L.J.V., INC.;
E. DICKERSON & SON, INC.; P.S.K. SUPERMARKETS,
INC.; MANYFOODS, INC.; FRANCIS MARKETS, LTD;
HARP MARKETING CORPORATION; SIDNEY CHARLES
MARKETS, INC.; D’AGOSTINO SUPERMARKETS, INC.;
V&V, INC.; NEPTUNE CITY LIQUORS, INC.;
JOHN DOES 1-50; ABC CORPORATIONS 1-5;
ABC CORPORATIONS 1-50
On Appeal from an Order Entered in
the United States District Court
for the District of New Jersey
D.C. Civil No. 99-cv-03333
United States District Judge:
Honorable Harold A. Ackerman
Argued: April 11, 2002
Before: McKEE and FUENTES, Circuit Judges, and
POGUE, Judge, United States Court of International Trade*
(Opinion Filed: July 17, 2002)
Kenneth I. Nowak (Argued)
Zazzali, Fagella, Nowak, Kleinbaum
& Friedman
Newark, NJ 07102-5410
Attorney for Appellant
Roger D. Netzer (Argued)
Willkie, Farr & Gallagher
New York, NY 10019-6099
Susan Stryker
Sterns & Weinroth
Trenton, NJ 08607
Attorneys for Appellees -
Foodtown, Inc., et al.
Anthony X. Arturi, Jr. (Argued)
Alampi, Arturi, D’Argenio, &
Guaglardi, LLP
Englewood Cliffs, NJ 007632
Attorney for Appellee -
Martin Vitale
_________________________________________________________________
* Honorable Donald C. Pogue, United States Court of International Trade,
sitting by designation.
2
James M. Strauss
Christopher M. Houlihan
Putney, Twombly, Hall &
Hirson, LLP
New York, NY 10175
Attorney for Appellees -
Nicholas D’Agostino and
D’Agostino Supermarkets, Inc.
OPINION OF THE COURT
POGUE, Judge, Court of International Trade:
Obligated by two collective bargaining agreements with
Teamsters Local 863 (the "Local"), Twin County Grocers,
Inc. ("Twin"), a wholesale distributor of supermarket and
related products which had become insolvent, incurred
withdrawal liability in the amount of $9.3 million to the
Local’s multiemployer pension fund. The Board of Trustees
of the pension fund ("Appellant") sought judgment against
several corporate and individual defendants ("Appellees").1
The Appellant alleges that the Appellees were Twin’s alter
ego, that Twin’s corporate veil should be pierced to assess
liability on the Appellees, and that the Appellees breached
fiduciary duties and aided and abetted the breach of
fiduciary duties owed to the Appellant. The district court
dismissed the action for lack of standing, based on its
conclusion that the bankruptcy trustee was the only
suitable party to pursue such a proceeding. The Board of
Trustees of the pension fund appeals. We reverse as to the
first three counts.
We have jurisdiction to hear this appeal pursuant to 28
U.S.C. S 1291 and 28 U.S.C. S 158(d). O’Dowd v. Trueger,
233 F.3d 197, 201 (3d Cir. 2000).
_________________________________________________________________
1. Appellees include the Foodtown Appellees, consisting of Foodtown
members, Foodtown directors, and Foodtown, Inc.; Nicholas D’Agostino
and D’Agostino Supermarkets, Inc.; and Martin Vitale.
3
I.
We exercise plenary review over the district court’s
granting of a Fed. R. Civ. P. 12(b)(6) motion to dismiss for
lack of standing and failure to state a claim. Jordan v. Fox,
Rothschild, O’Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.
1994). In reviewing the district court’s decision to grant
such a motion, we accept as true all allegations in the
complaint, giving the Plaintiff the benefit of every favorable
inference that can be drawn from the allegations. Id.; U.S.
Express Lines, LTD. v. Higgins, 281 F.3d 383, 388 (3d Cir.
2002). A complaint should not be dismissed for failure to
state a claim "unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim
which would entitle him to relief." Conley v. Gibson, 355
U.S. 41, 45-46 (1957).
II.
Appellant’s claim is based on withdrawal liability
established by the Employee Retirement Income Security
Act of 1974 ("ERISA"), 29 U.S.C. S 1001, et seq., as
amended by the Multiemployer Pension Plan Amendments
Act of 1980 ("MPPAA"), 29 U.S.C. SS 1381-1461.2
ERISA was enacted by Congress to protect employees’
pension rights. Milwaukee Brewery Workers’ Pension Plan
v. Jos. Schlitz Brewing Co., 513 U.S. 414, 416 (1995).
Congress found, however, that ERISA "did not adequately
protect plans from the adverse consequences that resulted
when individual employers terminate[d] their participation
in, or withdr[e]w from, multiemployer plans." Pension
Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717,
722 (1984). As a result, several years after the enactment of
ERISA, Congress promulgated the MPPAA to foster the
growth and continuance of multiemployer pension plans.
See Bay Area Laundry & Dry Cleaning Pension Trust Fund
v. Ferbar Corp., 522 U.S. 192, 196 (1997). The MPPAA’s
primary objective is to insulate these plans in order to
protect the retirement benefits of covered employees. In
_________________________________________________________________
2. There is no claim here involving the assumption or rejection of the
collective bargaining agreement pursuant to 11 U.S.C. S 1113.
4
order to satisfy this goal, the MPPAA requires employers
who withdraw from underfunded multiemployer pension
plans to pay a "withdrawal liability." See, e.g., ILGWU Nat’l
Retirement Fund v. Minotola Indus., Inc., 1991 U.S. Dist.
LEXIS 6147 (S.D.N.Y. 1991)(Withdrawal liability is imposed
in order "to ensure that workers’ retirement benefits w[ill]
actually be available during retirement.").
Complete withdrawal liability, pursuant to 29 U.S.C.
S 1383(a), is not incurred until an employer"(1)
permanently ceases to have an obligation to contribute
under the plan, or (2) permanently ceases all covered
operations under the plan." Therefore, a cause of action
under the MPPAA does not ripen until the employer fails to
make a payment on the schedule set by the fund. See Bay
Area Laundry & Dry Cleaning Pension Trust Fund, 522 U.S.
at 200-01. As the Pension Benefit Guaranty Corporation
("PBGC")3 advises, under ERISA, as amended by the
MPPAA, the date of withdrawal is the date that operations
actually cease -- the date does not relate back to the date
of filing of a Chapter 11 petition if operations have
continued thereafter. See PBGC Op. Letter No. 87-1 (Jan.
23, 1987).
With regard to alter ego liability in cases involving claims
to pension benefits protected by ERISA, as amended by the
MPPAA, there is "a federal interest supporting disregard of
the corporate form to impose liability." Lumpkin v.
Envirodyne Indus., Inc., 933 F.2d 449, 460-61 (7th Cir.
1991)("[T]he congressional intent of ERISA is to hold
employers responsible for pension benefits, so that when
the corporate form poses a bar to liability, ‘concerns for
corporate separateness are secondary to what we view as
the mandate of ERISA.’ ")(internal citations omitted).
_________________________________________________________________
3. The PBGC is a corporation within the United States Department of
Labor and is the agency charged with interpreting the MPPAA. Although
its interpretations are not binding, they require substantial deference.
See Cent. States, Southeast & Southwest Areas Pension Fund v. Nitehawk
Express, Inc., 223 F.3d 483, 491 (7th Cir. 2000); Penn Cent. Corp. v.
Western Conference of Teamsters Pension Trust Fund , 75 F.3d 529, 534
(9th Cir. 1996)(stating that the court is "obligated to defer to the PBGC’s
interpretation ‘even if reasonable minds could differ as to the proper
interpretation of the statute’ ").
5
In the instant case, the district court held that the
trustee of the bankruptcy estate, rather than Appellant,
was the proper party to pursue the present action. 4 That
court reasoned that Appellant’s alleged injuries were the
"property of the bankruptcy estate," Appellant’s Br., Ex. B
at 6, and would "impact[ ] Twin directly and all of Twin’s
creditors indirectly." Id. at 9.
Certainly the district court was correct that once a
company or individual files for bankruptcy, creditors lack
standing to assert claims that are "property of the estate."
The Bankruptcy Code defines the "estate" as"all legal or
equitable interests of the debtor in property as of the
commencement of the case," 11 U.S.C. S 541(a)(1), as well
as "[a]ny interest in property that the estate acquires after
the commencement of the case." Id. at 541(a)(7). This
definition is given broad application and includes"all kinds
of property, including . . . causes of action . . . ." United
States v. Whiting Pools, Inc., 462 U.S. 198, 205 n.9 (1983).5
Moreover, at least in some circuits, a trustee in bankruptcy
may maintain a "veil piercing" suit or alter ego action on
behalf of a bankrupt corporation where the claim alleged
involves a generalized injury to all creditors. See, e.g., Koch
Refining v. Farmers Union Cent. Exch., Inc., 831 F.2d 1339,
1346-47 (7th Cir. 1987).6
_________________________________________________________________
4. In this case, Twin filed for Chapter 11 liquidation. In a Chapter 11
case, unless a trustee is appointed, the debtor becomes a "debtor in
possession." 11 U.S.C. S 1101(1). As a debtor in possession in its
Chapter 11 case, Twin possesses the powers of a trustee. 11 U.S.C.
S 1107(a).
5. A cause of action is considered property of the estate if the claim
existed at the commencement of the filing and the debtor could have
asserted the claim on his own behalf under state law. Butner v. United
States, 440 U.S. 48, 54 (1979).
6. The district court cites to, inter alia , Mangan v. Williams Sys. Ltd.,
1990 WL 92695 (E.D.N.Y. 1990), an unpublished district court opinion,
as directly applicable here. In Mangan, plaintiff pension fund trustees
brought an action to recover delinquent contributions and withdrawal
liability that were the funding obligations of an insolvent employer.
Plaintiffs claimed that the defendants dismantled the employer
corporation and diverted its assets in order to evade the employer
corporation’s obligations to make pension fund contributions and pay
6
Here, however, Twin’s withdrawal liability is not property
of the estate. Although Twin filed its bankruptcy petition on
December 7, 1998, it did not cease operations until it
entered into a Shutdown Agreement on December 25, 1998,
and it continued contributions to the pension fund until
January 25, 1999. Therefore, the claim for withdrawal
liability did not arise until after the filing of the bankruptcy
petition.7
The claim for withdrawal liability is also not a legal or
equitable interest of the debtor. In order for the claim to be
the "legal or equitable interest of the debtor in property,"
the claim must be a "general one, with no particularized
injury arising from it." St. Paul Fire & Marine Ins. Co. v.
Pepsico, Inc., 884 F.2d 688, 701 (2d Cir. 1989)("If a claim is
a general one, with no particularized injury arising from it,
and if that claim could be brought by any creditor of the
debtor, the trustee is the proper person to assert the claim,
and the creditors are bound by the outcome of the trustee’s
action."). On the other hand, if the claim is specific to the
creditor, it is a "personal" one and is a legal or equitable
interest only of the creditor. A claim for an injury is
personal to the creditor if other creditors generally have no
interest in that claim. Koch Refining, 831 F.2d at 1348-49.8
_________________________________________________________________
withdrawal liability. The bankruptcy trustee also sued all but one of the
defendants for fraudulent conveyance and breach of fiduciary duty.
While allowing the plaintiff ’s "control group" claim to proceed to trial,
the district court stayed the plaintiffs’ alter ego claims, noting that "[i]f
the Trustee recovers against these defendants, it may be that plaintiffs’
claims will be satisfied." The court explicitly declined to decide whether
the plaintiffs’ claims were property of the debtor. We do not find the
holding of this opinion persuasive contrary authority to our analysis
here.
7. There is no claim here that the estate acquired an interest in the
fund’s claim for withdrawal liability after the commencement of the
bankruptcy case pursuant to 11 U.S.C. S 541(a)(7). Cf. O’Dowd v.
Trueger, 233 F.3d 197, 203-04 (3d Cir. 2000)(holding that where a cause
of action accrued pre-petition, and was also part of the original
bankruptcy estate, a subsequent cause of action"traceable directly" to it
is also estate property).
8. Thus, if, at the time of Twin’s filing, Appellant’s cause of action existed
and was general, it would be the property of the bankruptcy estate and
Appellant would lack standing to pursue the action.
7
In this case, the injury is not insolvency stemming from
Appellees’ actions. Here, the injury is the Appellees’ evasion
of withdrawal liability. Withdrawal liability is not owed to
Twin; rather, it is owed to the pension fund. Because the
liability is owed only to the fund, the claim is personal to
the Appellant. Moreover, absent a general creditors’
interest, a trustee can only collect money that may be
owing to the bankrupt entity. See Steinberg v. Buczynski,
40 F.3d 890, 892 (7th Cir. 1994) ( "If the corporation is
injured by the shareholders’ disregard of corporate
formalities . . . then the trustee can sue; otherwise he
cannot."). Here, there is no general creditors’ interest in the
statutorily imposed withdrawal liability owed to the fund.
Rather, the action to recover the withdrawal liability has
the character of an action for damages flowing from an
alleged illegality against the fund. The alleged illegality may
have caused other injuries in addition to those caused to
the fund, but the direct injury to the fund -- the evasion of
its statutory entitlement -- defines the nature of plaintiffs’
claim as a personal one. See Apostolou v. Fisher , 188 B.R.
958, 968 (N.D. Ill. 1995)(holding that when a third-party’s
actions injure both the individual creditor and the
corporation, the individual creditor "may pursue a cause of
action against a third-party outside bankruptcy for the
direct injuries that the creditor, rather than the
corporation, suffered"). As a result, Twin’s withdrawal
liability is not part of the bankruptcy estate pursuant to
section 541(a)(1) or (7). Consequently, the claim here
cannot be the property of the estate. See Steinberg, 40 F.3d
at 892.
Appellees rely on a New Jersey bankruptcy case, Tsai v.
Buildings by Jamie, Inc. (In re Buildings by Jamie, Inc.), 230
B.R. 36 (D.N.J. 1998), to demonstrate that alter ego and
veil piercing actions are the property of the bankruptcy
estate. Their reliance, however, is misplaced. There, the
trustee had standing to pursue an alter ego action on
behalf of the corporate debtor to recover on a defaulted
loan. Thus, the action was based on a general injury
suffered by a corporate debtor prior to its bankruptcy filing.
The cause of action in the present action arises from a
statutorily imposed withdrawal liability that occurred after
the filing of the bankruptcy petition.
8
Furthermore, the In re Buildings by Jamie court held,
consistent with our decision here, that under New Jersey
law an alter ego action is an equitable remedy that may
only be asserted by a corporation when it suffers harm.
Here, Twin did not suffer harm from the Appellees’ evasion
of withdrawal liability; only the Appellants suffered such
harm. See, e.g., Steinberg, 40 F.3d at 892-93 (explaining in
a similar case that "the only injured person here is the
pension fund"). As a result, the injury is personal to the
Appellants and only the creditor, not the bankruptcy
trustee, can pursue the claim. See id. ("When a third party
has injured not the bankrupt corporation itself but a
creditor of that corporation, the trustee in bankruptcy
cannot bring suit against the third party. He has no
interest in the suit.").
III.
Appellees also argue that should this court hold that
Appellant has standing, the district court’s decision to
dismiss the amended complaint should still be affirmed on
the alternate ground that it fails to state a claim upon
which relief can be granted. We find that the Appellant has
made the necessary showing for three of the four counts in
its complaint.
A. Counts I and II: Disregarding Corporate Formali-
ties
Abuses of the corporate form allow courts to impose
liability on the corporation’s shareholders. The purpose of
alter ego liability and piercing the corporate veil "is to
prevent an independent corporation from being used to
defeat the ends of justice, to perpetrate fraud, to
accomplish a crime, or otherwise to evade the law . . . ."
State Dep’t of Envtl. Protect. v. Ventron Corp., 94 N.J. 473,
500 (1983)(internal citations omitted).
Piercing the corporate veil is a "tool of equity," Carpenters
Health & Welfare Fund v. Kenneth R. Ambrose, Inc. , 727
F.2d 279, 284 (3d Cir. 1983), a "remedy that is involved
when [a subservient] corporation is acting as an alter ego of
[a dominant corporation.]" Peter J. Lahny IV, Securitization:
A Discussion of Traditional Bankruptcy Attacks and an
9
Analysis of the Next Potential Attack, Substantive
Consolidation, 9 Am. Bankr. Inst. L. Rev. 815, 865 (2001).
In order to state a claim for piercing the corporate veil
under New Jersey law, a plaintiff must show that: (1) one
corporation is organized and operated as to make it a mere
instrumentality of another corporation, and (2) the
dominant corporation is using the subservient corporation
to perpetrate fraud, to accomplish injustice, or to
circumvent the law. See Craig v. Lake Asbestos of Quebec,
Ltd., 843 F.2d 145, 149 (3d Cir. 1988); Major League
Baseball Promotion Corp. v. Colour-Tex, Inc., 729 F. Supp.
1035, 1046 (D.N.J. 1990).9 Factors to be considered in
determining whether to pierce the corporate veil include
gross undercapitalization . . . ‘failure to observe
corporate formalities, non-payment of dividends, the
insolvency of the debtor corporation at the time,
siphoning of funds of the corporation by the dominant
stockholder, non-functioning of other officers or
directors, absence of corporate records, and the fact
that the corporation is merely a facade for the
operations of the dominant stockholder or
stockholders.’
Craig, 843 F.2d at 150 (quoting American Bell, Inc. v.
Federation of Telephone Workers, 736 F.2d 879, 886 (3d
Cir. 1984)).
Appellant alleges that defendants failed to maintain
formal barriers between the management structures of
_________________________________________________________________
9. Foodtown argues that Appellant must prove that the defendants are a
"parent" of Twin, which they have failed to do. "Parent" corporations,
however, are not the only parties liable under a veil piercing theory.
Shareholders have also been found liable when they have totally
dominated the corporation, failed to maintain the corporate identity, and
used the corporation to perpetrate fraud, injustice or some other
illegality. See, e.g., Conestoga Title Ins. Co. v. Premier Title Agency, Inc.,
328 N.J. Super. 460, aff ’d, 166 N.J. 2 (2000); In re Buildings by Jamie,
Inc., 230 B.R. at 42 ("[W]hile in most cases courts have been willing to
pierce the corporate veil in the parent-subsidiary context, given the ease
with which the individual owners here altered their organizations and
closely held assets, there appears to be no reason to limit the application
of the rule to parent-subsidiary relationships.")(quoting Stochastic
Decisions, Inc. v. DiDomenico, 236 N.J. Super. 388, 395 (App. Div. 1989).
10
Foodtown and Twin; failed to maintain formal barriers
between Foodtown and Twin for purposes of legal
representation; commingled funds and other assets; and
failed to observe other corporate formalities. Am. Compl.
PP 79(a),(b),(c),(e). Furthermore, Appellant contends that
Foodtown and Twin shared twelve of thirteen common
directors and that at all times Twin’s Board of Directors
was dominated and controlled by the Foodtown-affiliated
Directors. Id. PP 69, 70. Appellant also claims that all of
Foodtown’s shareholder/members were also members of
Twin and that all the corporate defendants were common
shareholder/members of Foodtown and Twin. Id. P 71.
Appellant also claims that Foodtown and Twin shared the
same principal office and registered office. Id. PP 72, 73.
These allegations, accepted as true in consideration of a
12(b)(6) motion, support the first prong of the veil piercing
test -- that Twin was merely an instrumentality of
Foodtown.
Appellant, however, must also allege that Foodtown used
Twin to perpetrate fraud, to accomplish injustice, or to
circumvent the law.10 Here, Appellant alleges, in
_________________________________________________________________
10. Foodtown argues that the Appellant’s allegations do not meet the
heightened pleading requirements for fraud. Foodtown’s Br. at 54. When
a cause of action seeks to pierce the corporate veil on the basis of fraud,
it is subject to Fed. R. Civ. P. 9(b). Coyer v. Hemmer, 901 F. Supp. 872,
883-84 (D.N.J. 1995). The purpose of Rule 9(b) "is [to] provide
defendants with notice of the precise misconduct that is alleged and to
protect defendants’ reputations by safeguarding them against spurious
allegations of immoral and fraudulent behavior." In re Burlington Coat
Factory Sec. Litig.,114 F.3d 1410, 1418 (3d Cir. 1997). In order to put
defendants on notice Rule 9(b) requires that "in all averments of fraud or
mistake, the circumstances constituting fraud or mistake shall be stated
with particularity." For example, the requirements of rule 9(b) may be
satisfied if the complaint describes the circumstances of the alleged
fraud with "precise allegations of date, time, or place" or by using some
means of "injecting precision and some measure of substantiation into
their allegations of fraud." Naporano Iron & Metal Co. v. Amer. Crane
Corp., 79 F. Supp. 2d 494, 511 (D.N.J. 1999)(internal citations omitted);
see also Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d
786, 791 (3d Cir. 1984). Although the complaint does not contain
specifics concerning the date, time or place of the allegations, the
complaint does plead the allegations with some particularity.
11
subparagraph 79(d), that the Appellees diverted monies
destined for withdrawal liability. Appellant’s enumeration of
Appellees’ actions, consisting of diverting funds, fictitious
invoices and kickbacks, "inject[s] precision and some
measure of substantiation into their allegations of fraud,"
consistent with Rule 9(b). See Naporano Iron & Metal, 79 F.
Supp. 2d at 511. When viewed in the light most favorable
to the Appellant, these allegations can support a claim that
Appellees used Twin "to perpetrate fraud, to accomplish
injustice, or to circumvent the law." Major League Baseball,
729 F. Supp. at 1046.
B. Count III: Fiduciary Duties
The third count of Appellant’s complaint alleges that
"[t]he individual officers and directors of Twin and
Foodtown are fiduciaries with respect to Union Employees
who were Plan participants represented by Plaintiff." Am.
Compl. P 85. Appellees argue that they are not fiduciaries
under ERISA. The district court, however, stated that
Appellant’s fiduciary duty claims "were being brought under
state and common law and not under ERISA." Appellant’s
Br., Ex. B, at 4 & n.2 ("The Fund’s theory of liability is not
based on Defendants’ status as ‘fiduciaries’ per se under
ERISA but as fiduciaries to the Fund as a creditor of Twin,
an insolvent corporation.")(quoting Pl.’s Br. at 36).
Generally, corporate directors owe a fiduciary duty only
to the corporation’s shareholders. "This duty includes an
obligation not to take action which would be adverse to the
Corporation’s interests." Ayr Composition, Inc. v. Rosenburg,
261 N.J. Super. 495, 501 (App. Div. 1993)(internal
quotations omitted). Once a corporation becomes insolvent,
however, the directors assume a fiduciary or "quasi-trust"
duty to the corporation’s creditors. See id. at 505. In this
quasi-trust relationship, "officers and directors cannot
prefer one creditor over another, and they have a‘special
duty not to prefer themselves.’ " In re Stevens, 476 F. Supp.
147, 153 n.5 (D.N.J. 1979). Based on the allegations here,
the trial court could find that the individual officers and
directors of Twin and Foodtown breached their duties
under their quasi-trust relationship by "withholding and
diverting for their own benefit the monies that should have
been used to make . . . contributions." Am. Comp.P 85.
12
C. Count IV: Aiding and Abetting Fiduciary Duties
In the fourth count of its complaint, Appellant claimed
that "[a]s an ‘employer’ under ERISA, Twin, Foodtown and
Defendant Control Group members are fiduciaries with
respect to Union Employees who were Plan participants
represented by Plaintiff." Id. P 88.11 Appellant contends that
"Defendants jointly and severally aided and abetted the
breach of fiduciary duties owed to Plan participants by
Twin, Foodtown and the Defendant Control Group
members, by knowingly and willfully participating in those
entities’ breach of their fiduciary duties under ERISA." Id.
P 89. Although the district court characterized Appellant’s
fiduciary duty claim in count III of the complaint as a
"common law claim," it is not possible to understand
Appellant’s claim of aiding and abetting fiduciary duties in
this manner.
In this count, Appellant’s claim is that Twin and
Foodtown breached fiduciary duties owed under ERISA. In
order to acquire fiduciary status under ERISA, the party
must (1) be named as a fiduciary in the instrument
establishing the plan; (2) named as a fiduciary pursuant to
a procedure specified in a plan instrument; or (3) fall within
the statutory definition of fiduciary. Glaziers &
Glassworkers v. Newbridge Sec., 93 F.3d 1171, 1179 (3d
Cir. 1996). Section 1002(21)(A) provides that
a person is a fiduciary with respect to a [pension] 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
other compensation, direct or indirect, with respect to
any monies or other property of such plan, or has any
_________________________________________________________________
11. We do not consider Appellant’s claim that the"Defendant Control
Group" is liable for aiding and abetting a breach of fiduciary duty. This
is the only mention of a "control group" theory and Appellant presents
no arguments in its brief on this matter. Furthermore, in the district
court opinion, the Judge noted that in a status conference before
Magistrate Judge Chesler, the fund agreed to omit its controlled-group
claim from the Amended Complaint. See Appellant’s Br., Ex. B at 3 n.1.
13
authority or responsibility to do so, or (iii) he has any
discretionary authority or discretionary responsibility
in the administration of the plan . . . .
29 U.S.C. S 1002(21)(A). In order to be found liable for
aiding and abetting a breach of a fiduciary duty, one must
demonstrate that the party knew that the other’s conduct
constituted a breach of a fiduciary duty and gave
substantial assistance or encouragement to the other in
committing that breach. See Resolution Trust Corp. v.
Spagnoli, 811 F. Supp. 1005, 1014 (D.N.J. 1993).
Here, the only fiduciary named in the collective
bargaining agreements is the Appellant. There are no
allegations that Twin or Foodtown had a role in the
management and investment of the Fund’s assets.
Moreover, Twin and Foodtown are not automatically
fiduciaries pursuant to ERISA, as amended by the MPPAA,
even if they are "employers." See Hozier v. Midwest
Fasteners, Inc., 908 F.2d 1155, 1158 (3d Cir.
1990)("Fiduciary duties under ERISA attach not just to
particular persons, but to particular persons performing
particular functions. Thus, when employers themselves
serve as plan administrators they assume fiduciary status
only when and to the extent that they function in their
capacity as plan administrators.")(internal quotations
omitted). Appellant argues that Appellees "knowingly and
willfully participat[ed] in [Twin and Foodtown’s] breach of
their fiduciary duties under ERISA," but Appellant has not
alleged any basis upon which Twin and Foodtown owe
fiduciary duties under ERISA. Therefore, this count must
be dismissed for failure to state a claim.
IV.
Prior to instituting an action for withdrawal liability,
ERISA requires written notice to the withdrawing party of
the amount of withdrawal liability claimed and a demand
for payment. 29 U.S.C. S 1399(b)(1). Appellee Vitale argues
that Appellant failed to notify him that it would pursue an
action against Vitale seeking Twin’s withdrawal liability.
Vitale claims that because this notice requirement is an
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unwaivable precondition for instituting an action, the
complaint should be dismissed.12
Although the notice requirement cannot be waived, in
this case the notice sent to Twin provided sufficient notice
to Twin’s alter egos and satisfies 29 U.S.C.S 1399(b)(1).
Due to the remedial purpose of ERISA and the MPPAA, the
MPPAA’s notice provisions are liberally construed to protect
pension plan participants. IUE AFL-CIO Pension Fund v.
Barker & Williamson, Inc., 788 F.2d 118, 127 (3d Cir.
1986). For purposes of this issue, the present situation is
analogous to a control group, in which all members of the
control group are treated as a single employer. Like a
control group, a corporation and its alter ego are essentially
a single employer because in all aspects of business the two
function as a single entity. It is unnecessary to notify a
corporation’s alter ego because notice is accomplished
through the alter ego relationship. Therefore, notice to Twin
served as notice to its alter egos.
V.
Foodtown also argues that Twin "unconditionally released
all the estate’s claims against the Foodtown Appellees."
Foodtown Br. at 60. In a consent order approving Twin’s
settlement with Foodtown and various other corporate
defendants, a general release provided, in pertinent part,
that "[r]eleasors hereby remise, release and forever
discharge by these presents . . . and do hereby remise,
release and forever discharge [the Foodtown Appellees] . . .
from any and all manners of action . . . , causes of action,
suits, debts, sums of money . . . now known or unknown,
or hereafter becoming known, from the beginning of the
world until the date of this General Release." Consent Order
Approving Settlements with Foodtown, Heller and Lloyd’s,
Dismissal of Lawsuit and Entry into Mutual Releases,
_________________________________________________________________
12. In support of his argument, Vitale cites to Connors v. Peles, 724 F.
Supp. 1538 (W.D. Pa. 1989) and Canario v. Lidelco, Inc., 782 F. Supp.
749 (E.D.N.Y. 1992). In both cases, the courts first determined that the
defendants were not the alter egos of the corporation, and then
discussed the notice issue in dicta.
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Supp. App. II, SA 358. Foodtown claims that this release
bars the present action.
Appellant argues that the settlement agreement
"expressly stated that the [release given by the Debtor to
the Foodtown Appellees] . . . shall not be deemed to be a
release of the Fund’s claim" in this action. Appellant’s Br.
at 3, 9. According to Foodtown, however, the inclusion of
this provision demonstrates that Twin "generally released
the Foodtown Appellees only after due notice to the
Appellant, and that Appellant made a deliberate decision to
waive its right to object." Foodtown Br. at 27.
Whether the release precludes the present lawsuit
depends on the characterization of the underlying claim.
Because Appellant’s cause of action is based on withdrawal
liability under ERISA and is not considered property of the
estate, Twin’s release does not affect Appellant’s claims.
Even Foodtown acknowledges that its argument that
Appellant lacks standing is based on a theory of"property
of the estate." Id. at 26 (arguing that"Appellant lacked
standing . . . because such claims, as property of the
Debtor’s estate, could only be brought by the Debtor").
Therefore, Twin’s general release does not bar the present
action.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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