LeBlanc v. Cahill ( 2001 )


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  •                            UNPUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    MARC E. LEBLANC, in his capacity           
    as Administrator of and participant
    in the Sheet Metal Workers’
    National Pension Fund; JOHN
    HARRINGTON, in his capacity as a
    participant in the Sheet Metal
    Workers’ National Pension Fund,
    Plaintiffs-Appellants,
    and
    SHEET METAL WORKERS’ NATIONAL
    PENSION FUND; ARTHUR MOORE, in
    his capacity as Trustee of the Sheet
    Metal Workers’ National Pension
    Fund; ALAN J. CHERMAK, in his
    capacity as National Pension Fund             No. 99-1866
    Trustee; MATTHEW B. HERNANDEZ,
    JR., in his capacity as National
    Pension Fund Trustee; CLINTON O.
    GOWAN, JR., in his capacity as
    National Pension Fund Trustee;
    RONALD PALMERICK, in his capacity
    as National Pension Fund Trustee;
    BRUCE STOCKWELL, in his capacity as
    National Pension Fund Trustee,
    Plaintiffs,
    POPHAM, HAIK, SCHNOBRICH &
    KAUFMAN, LIMITED,
    Intervenor-Plaintiff,
    v.
    
    2                         LEBLANC v. CAHILL
    LAWRENCE A. CAHILL; KENNETH M.          
    CAHILL; LARKEN, INCORPORATED;
    LARKEN PROPERTIES, INCORPORATED,
    Defendants-Appellees,
    and
    EDWARD WILLIAMS; RICK MANDRELL;
    OAKLEIGH J. THORNE; THORNE
    CONSULTANTS, INCORPORATED; JAMES
    W. BECK; CHARLES E. UNDERBRINK;
    EDWARD J. CARLOUGH; GORDON
    JONES; CAVET SNYDER; JUNE M.
    CARLOUGH, in her capacity as the
    Administratrix of the estate of
    
    Edward J. Carlough; JUDITH L.
    BOYCE JONES, in her capacity as
    representative of the estate of
    Gordon Jones; PENNSYLVANIA
    NATIONAL UNION FIRE INSURANCE
    COMPANY, Pittsburgh, Pennsylvania,
    Defendants,
    ALEXIS M. HERMAN, Secretary of
    Labor of the United States
    Department of Labor,
    Party in Interest.
    
    Appeal from the United States District Court
    for the Eastern District of Virginia, at Alexandria.
    Leonie M. Brinkema, District Judge.
    (CA-95-1557-A)
    Submitted: January 26, 2001
    Decided: February 13, 2001
    Before WILKINSON, Chief Judge, and WIDENER and
    MOTZ, Circuit Judges.
    LEBLANC v. CAHILL                           3
    Vacated and remanded by unpublished per curiam opinion.
    COUNSEL
    Stephen M. Rosenblatt, Alexandria, Virginia; John O’B. Clarke, Jr.,
    HIGHSAW, MAHONEY & CLARKE, P.C., Washington, D.C., for
    Appellants. Mark Fox Evens, M.M. Hogans, THELEN, REID &
    PRIEST, L.L.P., Washington, D.C., for Appellees.
    Unpublished opinions are not binding precedent in this circuit. See
    Local Rule 36(c).
    OPINION
    PER CURIAM:
    The Sheet Metal Workers’ National Pension Fund ("Fund") is a
    multi-employer employee pension benefit plan, subject to regulation
    under the Employee Retirement Income Security Act of 1974
    ("ERISA"), 
    29 U.S.C.A. §§ 1001-1461
     (West 1999 & Supp. 2000).
    Appellant Marc E. LeBlanc is a fiduciary and participant in the Fund.
    Appellant John D. Harrington is a participant in the Fund. In 1994,
    the Fund filed suit against thirteen Defendants seeking equitable and
    legal relief for losses the Fund sustained as a result of a $15 million
    investment. The district court dismissed the suit against those Defen-
    dants charged with selling the investment to the Fund on the basis that
    ERISA does not provide a cause of action against a nonfiduciary non-
    party in interest for participating in an act prohibited by ERISA
    § 406(b), 
    29 U.S.C. § 1106
    (b) (1994). The Plaintiffs appealed.
    On appeal, this court held that ERISA § 502(a)(3), 
    29 U.S.C. § 1132
    (a)(3) (1994), allows the Appellants to bring a cause of action
    against the Appellees for appropriate equitable relief on account of
    their alleged knowing participation in a transaction prohibited by
    ERISA § 406(b). The district court’s order dismissing the case against
    4                          LEBLANC v. CAHILL
    the Appellees was vacated and the case remanded for further proceed-
    ings consistent with this court’s opinion. See LeBlanc v. Cahill, 
    153 F.3d 134
    , 151-55 (4th Cir. 1998).
    On remand, the remaining Defendants were Lawrence Cahill, Ken-
    neth Cahill, Larken, Inc., and Larken Properties, Inc. (collectively "Sell-
    ers").1 The Appellants charged that the Sellers induced Edward I.
    Williams, Manager of Direct Investments for the Fund, and Rick
    Mandrell, a consultant to the Fund, by offering a kickback or commis-
    sion, to recommend that the Fund invest in Larken Hotels Limited
    Partnership ("LHLP"). Under ERISA § 406(b)(3), a plan fiduciary is
    prohibited from receiving any consideration for his own personal
    account from any party dealing with such plan in connection with a
    transaction involving the assets of the plan.
    The district court found that Williams received consideration from
    James W. Beck, who had agreed to assist the Sellers by locating
    investors for LHLP.2 Accordingly, the district court found that Wil-
    liams, as a fiduciary to the Fund, had violated ERISA § 406(b)(3).
    With regard to the Cahills and Larken, Inc., the district court found
    that there was no credible evidence that those parties were actually
    aware that Williams was a fiduciary to the Fund. The court did not
    find credible testimony from Beck, Williams, and Charles Under-
    brink, another person assisting the Cahills in marketing LHLP, that
    the Cahills were informed of Williams’ status as Manager of Direct
    Investments for the Fund. In addition, the court rejected the Appel-
    lants’ argument that the Cahills and Larken, Inc., were aware of the
    facts that made Williams a fiduciary to the Fund by stating that the
    Appellants "failed to demonstrate that the Cahills were actually aware
    of Williams’ status as a fiduciary." (J.A. at 145). The court further
    found that the Cahills did not have actual knowledge that Williams
    breached his fiduciary duty. In addition, the court rejected the Appel-
    lants’ argument that because Beck was an agent for the Cahills, it
    should impute his actions and knowledge to them. The court found
    1
    The Cahills have an ownership interest in Larken, Inc., and Larken
    Properties, Inc.
    2
    Beck also had an ownership interest in Larken Properties, Inc.
    LEBLANC v. CAHILL                           5
    that although Beck was an agent for the Cahills, he was "acting at
    least as much for his own benefit as for that of the Cahills and Larken,
    Inc." and he "was wearing so many hats during this time period,
    including in his interactions with Williams, it would be inappropriate
    to impute his knowledge and actions to the Cahills and Larken, Inc.
    under these circumstances."3 (J.A. at 149-50).
    The district court further rejected the Appellants’ argument that
    because Beck and Williams engaged in a prohibited transaction, the
    monies paid by the Fund were subject to a constructive trust and the
    Defendants bore the burden of showing that they were bona fide pur-
    chasers by having paid value without notice of the breach. According
    to the court, the burden was on the Plaintiffs to show that there was
    a prohibited transaction and the Defendants knowingly participated in
    the transaction. The court noted that the Appellants were attempting
    to avoid having to prove that the Defendants were liable for their
    knowing participation in the prohibited transaction by invoking a
    burden-shifting regime that applies to a remedy for the cause of
    action. The court found that there was no evidence that the Cahills
    and Larken, Inc., knew about the prohibited transaction and know-
    ingly participated in it.
    As for equitable relief as a result of Larken Properties, Inc.’s
    ("LPI") participation in Williams’ breach, the district court found that
    LPI was liable for $1,187,348.51 in damages. The court subtracted
    from that amount the present value of payments Beck and Underbrink
    agreed to reimburse pursuant to a settlement agreement. The Appel-
    lants filed a motion under Rule 59(e) of the Federal Rules of Civil
    Procedure challenging the court’s decision to set-off the damages
    award, which the court denied.
    While the appeal was pending in this court, the Supreme Court
    issued an opinion in Harris Trust & Sav. Bank v. Salomon Smith Bar-
    ney, Inc., 
    530 U.S. 238
    , 
    120 S. Ct. 2180
     (2000). We granted the
    Appellants’ motion to file a supplemental brief on the relevance of
    this case.
    3
    The court found that Larken Properties, Inc., had knowledge of Wil-
    liams’ breach and knowingly participated in the breach because Beck and
    Underbrink handled the day-to-day operations of that business.
    6                         LEBLANC v. CAHILL
    In Harris Trust, Salomon Smith Barney, Inc. ("Salomon"), was a
    party in interest to an ERISA pension plan and charged with entering
    into a transaction prohibited by ERISA § 406(a) and not exempted by
    ERISA § 408. The Seventh Circuit held that ERISA § 502(a)(3) does
    not provide a private cause of action against a nonfiduciary for know-
    ing participation in a fiduciary’s breach of duty. The Supreme Court
    reversed, finding that ERISA § 502(a)(3) authorizes actions for "ap-
    propriate equitable relief," for the purpose of redressing any ERISA
    violations. The Court found that there is "no limit . . . on the universe
    of possible defendants." Harris Trust, 530 U.S. at ___, 
    120 S. Ct. at 2187
    .
    The Supreme Court rejected Salomon’s argument that suits under
    ERISA § 502(a)(3) would be brought against innocent third parties
    rather than the true wrongdoers. The Court stated that:
    [t]he common law of trusts, which offers a "starting point
    for analysis [of ERISA] . . . [unless] it is inconsistent with
    the language of the statute, its structure, or its purposes,"
    Hughes Aircraft Co. v. Jacobson, 
    525 U.S. 432
    , 447, 
    119 S. Ct. 755
    , 
    142 L. Ed.2d 881
     (1999) (internal quotation marks
    omitted), plainly countenances the sort of relief sought by
    petitioners against Salomon here. As petitioners and amicus
    curiae the United States observe, it has long been settled
    that when a trustee in breach of his fiduciary duty to the
    beneficiaries transfers trust property to a third person, the
    third person takes the property subject to the trust, unless he
    has purchased the property for value and without notice of
    the fiduciary’s breach of duty. The trustee or beneficiaries
    may then maintain an action for restitution of the property
    (if not already disposed of) or disgorgement of proceeds (if
    already disposed of), and disgorgement of the third person’s
    profits derived therefrom.
    Id. at 2189. Thus, the Court incorporated common-law remedial prin-
    ciples to an action for equitable relief. Id. at 2190. The Court further
    stated that:
    [i]t also bears emphasis that the common law of trusts sets
    limits on restitution actions against defendants other than the
    LEBLANC v. CAHILL                            7
    principal "wrongdoer." Only a transferee of ill-gotten trust
    assets may be held liable, and then only when the transferee
    (assuming he has purchased for value) knew or should have
    known of the existence of the trust and the circumstances
    that rendered the transfer in breach of the trust. Translated
    to the instant context, the transferee must be demonstrated
    to have had actual or constructive knowledge of the circum-
    stances that rendered the transaction unlawful. Those cir-
    cumstances, in turn, involve a showing that the plan
    fiduciary, with actual or constructive knowledge of the facts
    satisfying the elements of a § 406(a) transaction, caused the
    plan to engage in the transaction. Id.
    Naturally, the district court in the instant case did not have the ben-
    efit of the Supreme Court’s opinion in Harris Trust when it found that
    the Cahills and Larken, Inc., were not liable to the Appellants. Based
    on Harris Trust, it is evident that the court used an improper standard
    to determine whether the Appellants were entitled to relief from the
    Cahills and Larken, Inc.
    Accordingly, we vacate the court’s judgment and remand for fur-
    ther proceedings consistent with this opinion and the Supreme Court’s
    holding in Harris Trust. We dispense with oral argument because the
    facts and legal contentions are adequately presented in the materials
    before the court and argument would not aid the decisional process.
    VACATED AND REMANDED
    

Document Info

Docket Number: 99-1866

Judges: Wilkinson, Widener, Motz

Filed Date: 2/13/2001

Precedential Status: Non-Precedential

Modified Date: 10/19/2024