Southern IL Carpente v. Carpenters Welfare

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 02-1984 and 02-2489
SOUTHERN ILLINOIS CARPENTERS WELFARE FUND, et al.,
Plaintiffs-Appellants,
v.
CARPENTERS WELFARE FUND OF ILLINOIS, et al,
Defendants-Appellees.
____________
Appeals from the United States District Court
for the Central District of Illinois.
No. 01-C-3337—Jeanne E. Scott, Judge.
____________
ARGUED JANUARY 17, 2003—DECIDED APRIL 22, 2003
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Before BAUER, POSNER, and EVANS, Circuit Judges.
POSNER, Circuit Judge. The plaintiffs in this ERISA suit
are former participants in the welfare plan of the Carpen-
ters Welfare Fund of Illinois, their union, the association
of their employers, and the new welfare fund that the
union and the employers’ association formed when they
broke away from the Carpenters Welfare Fund. The plain-
tiffs are suing the Fund (and others who need not be
discussed separately) for the value of “banked hours” that
the union’s members left in the Fund when they broke away
in 1994. The district court dismissed the suit for lack of
subject matter jurisdiction, and the plaintiffs appeal.
2 Nos. 02-1984, 02-2489
The Fund is a multiemployer ERISA welfare fund admin-
istered by a board of trustees composed of representatives
of employers and unions. To qualify for benefits, a plan
participant must work 200 hours each quarter. If he ex-
ceeds that number in some quarter, he can place the sur-
plus hours in the plan’s “hour bank” and withdraw them
later to maintain eligibility for benefits in any quarter in
which he fails to work 200 hours, except that his “bank ac-
count” may not exceed 1600 hours. The plan is explicit
that a participant who quits the plan forfeits all his rights
as a participant. Unlike benefits under an ERISA pension
plan, benefits under an ERISA welfare plan do not vest
automatically after a given period of time, Curtiss-Wright
Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995); Bidlack
v. Wheelabrator Corp., 993 F.2d 603, 604-05 (7th Cir. 1993)
(en banc) (plurality opinion), though of course the plan
can provide for vested or perpetual benefits, id. at 605;
Pabst Brewing Co. v. Corrao, 161 F.3d 434, 439 (7th Cir.
1998)—which this one, however, emphatically does not do.
Among the benefits forfeited by the terms of the plan are
the quitting participants’ accounts in the hour bank. The
reason the plaintiffs are seeking the value of the hours
rather than the hours themselves is that having quit the
plan they are entitled to no benefits under it. They want
the value of their hours so that they can buy welfare bene-
fits elsewhere.
The provision of ERISA under which the plaintiffs sued
limits the right to sue to plan participants and beneficiaries.
29 U.S.C. § 1132(a)(1). Since employers are neither, Giar-
dono v. Jones, 867 F.2d 409, 412-13 (7th Cir. 1989), the employ-
ers’ association cannot sue. The union is suing as the
representative of its members, but before considering their
right to sue let us consider briefly whether an associa-
tion can sue on their behalf. An oldish case of ours, Interna-
tional Ass’n of Bridge, Structural & Ornamental Iron Workers
Nos. 02-1984, 02-2489 3
Local No. 111 v. Douglas, 646 F.2d 1211, 1214 (7th Cir. 1981),
authorized such a representative suit, though without
explaining the basis for such authorization. See also
Communications Workers of America v. American Tel. & Tel.
Co., 40 F.3d 426, 434 n. 2 (D.C. Cir. 1994). New Jersey State
AFL-CIO v. New Jersey, 747 F.2d 891, 892-93 (3d Cir. 1984),
holds the contrary, however, and Giordano v. Jones, supra,a later decision by this court, without citing the Douglas
case, casts doubt on its continuing vitality by holding that
employers may not sue under ERISA because the statute
does not authorize them to sue. See also Stone & Webster
Engineering Corp. v. Ilsley, 690 F.2d 323, 326 (2d Cir. 1982);
County, Municipal Employees’ Supervisors & Foreman’s Union
Local No. 1001 v. Laborers’ Pension Fund, 240 F. Supp. 2d 827,
828-31 (N.D. Ill. 2003). Nor does it authorize associations
to sue. Yet associations have standing to sue in the Article
III sense on behalf of their members, Warth v. Seldin, 422
U.S. 490, 511 (1975), and Fed. R. Civ. P. 23.2 authorizes un-
incorporated associations, such as unions, see Cook Coun-
ty College Teachers Union, Local 1600 v. Byrd, 456 F.2d 882,
886 n. 2 (7th Cir. 1972); In re IBP Confidential Business Docu-
ments Litigation, 491 F. Supp. 1359, 1360 (J.P.M.L. 1980), to
bring a form of class action on behalf of their members.
That is an apt description of the present suit. Congress can
withdraw the right to sue, of course, but with all due re-
spect to the contrary view of the Third Circuit, we do not
think that by confining the right to sue under section
1132(a)(1) to plan participants and beneficiaries Congress
intended to prevent unions from suing on behalf of partici-
pants. The union in such a case is not seeking anything
for itself; the real plaintiffs in interest are plan participants.
The new welfare fund, the one formed by these break-
away employers and workers, is an ERISA fiduciary and
a breach of fiduciary duty is an express basis for an ERISA
suit. 29 U.S.C. §§ 1109(a), 1132(a)(2); see Peoria Union Stock
Yards Co. Retirement Plan v. Penn Mutual Life Ins. Co., 698
4 Nos. 02-1984, 02-2489
F.2d 320, 326 (7th Cir. 1983). But neither the old fund nor
any other defendant has any fiduciary duty toward the new
fund. And, speaking of defendants, the plaintiffs’ claim
against a lawyer for the old fund fails because he was not
an ERISA fiduciary; he did not control the fund. See Pappas
v. Buck Consultants, Inc. 923 F.2d 531, 538 (7th Cir. 1991).
Nor could he be sued for plan benefits, under 29 U.S.C.
§ 1132(a)(1), as he is not the plan or the plan’s administrator.
Thus the critical question, so far as jurisdiction is con-
cerned, is whether the union’s members are plan partici-
pants; if not, the suit fails regardless of its merit or lack
thereof because none of the other plaintiffs is eligible to
sue except the union, and its right to sue is derivative
from that of the union’s members. The plan confers cer-
tain rights on “ineligible participants,” but the reference
is to participants in the plan who are ineligible for benefits
for one reason or another, not to former participants. ERISA
defines “participant,” however, to include not only a cur-
rent employee but also a former one, provided that he “is
or may become eligible to receive a benefit.” 29 U.S.C.
§ 1002(7). The Supreme Court has held that “may become”
means has “a colorable claim to vested benefits,” Firestone
Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117 (1989), and a
colorable claim is merely one that is not frivolous. Neuma,
Inc. v. AMP, Inc., 259 F.3d 864, 878-79 and n. 11 (7th Cir.
2001); Davis v. Featherstone, 97 F.3d 734, 737-38 (4th Cir.
1996). Thus a former participant in an ERISA plan may
sue for vested benefits, though, as with any plaintiff, if his
claim is frivolous his suit will be dismissed for failure to
invoke the jurisdiction of the federal court. Duke Power Co.
v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 70-
71 (1978); Walters v. Edgar, 163 F.3d 430, 433 (7th Cir. 1998).
The district court thought that the employee plaintiffs
in this case did not have even a colorable claim, because the
Nos. 02-1984, 02-2489 5
plan is explicit that employees who quit the plan have
no remaining rights under it, including rights to banked
hours. It makes no practical difference, however, whether
the plaintiffs lack a colorable claim or merely lack a good
claim; either way they lose. They make a number of argu-
ments in an effort to overcome the language of the plan,
though only two have enough merit to warrant discus-
sion. They point out that when someone leaves the plan but
later returns to it, the plan restores the banked hours that
he forfeited when he left. They think this shows that
banked hours are vested benefits. It does not. The practice
to which they refer is an inducement to former participants
to return; but what these plaintiffs seek is not that, but
instead a cash payout for leaving.
So the plaintiffs cannot base their claim on the terms of
the plan. But they point out that prior to quitting it their
employers and their union had asked the plan’s trustees
to amend it to permit departing participants to take the
monetary value of their hours with them. In accordance
with the provisions of the plan relating to amendments,
the request was submitted to the plan’s trustees, consist-
ing of union and employer representatives, for a vote. The
trustees first decided, on the advice of the plan’s lawyer
(the lawyer whom the plaintiffs joined as a defendant),
that the trustees who had been appointed by the depart-
ing employers and union could not vote on the proposed
amendment. The vote was then taken and the union trust-
ees voted for it but the employer trustees voted against
it, producing a deadlock (the plan gives equal votes to
employer and union trustees even when, as in this case,
there are uneven numbers voting). The matter was referred
to arbitration, as provided by the plan. The arbitrator ruled
that the plan should not be amended to permit employees
quitting the plan to take the value of their banked hours.
6 Nos. 02-1984, 02-2489
The plaintiffs complain about the exclusion of their rep-
resentatives from the decisionmaking process in the board
of trustees and about the vote of the (truncated) board
against the proposed amendment. They also argue that
the arbitrator had no authority to rule on proposed amend-
ments. The last argument gets them nowhere, since if ac-
cepted it would mean that the vote on their proposal was
an unbreakable tie, constituting therefore a definitive re-
jection of the proposal. As for the complaint about the
board’s procedural decision to exclude the “interested”
trustees, the decision does seem very peculiar, since the
remaining trustees were just as interested in the outcome,
and the vote stripping could be regarded as a breach of
fiduciary duty to the employers and union whose rep-
resentatives were excluded. It is fundamental that “when
there are two or more beneficiaries of a trust, the trustee
is under a duty to deal impartially with them.” Restate-
ment of Trusts (Second) § 183 (1959); White Mountain Apache
Tribe v. United States, 249 F.3d 1364, 1379 (Fed. Cir. 2001); for
the application of this principle to ERISA, see 29 U.S.C.
§ 1104(a)(1)(B); First National Bank v. A.M. Castle & Co.
Employee Trust, 180 F.3d 814, 817 (7th Cir. 1999); Summers
v. State Street Bank & Trust Co., 104 F.3d 105, 108 (7th
Cir. 1997); Morse v. Stanley, 732 F.2d 1139, 1145 (2d Cir.
1984). But this claim is barred by the three-year statute
of limitations applicable to claims of breach of fiduciary
duty under ERISA. 29 U.S.C. § 1113(2).
As for whether the vote itself, turning down the pro-
posed amendment, violated ERISA, the argument that it
did assumes that the plaintiffs had no vested benefits un-
der the plan—otherwise they wouldn’t have needed an
amendment. ERISA confers no enforceable right to amend
a plan (as opposed to an enforceable right to benefits due)
unless refusal to amend would be a breach of the trustee’s
fiduciary duties and thus be actionable under 29 U.S.C.
Nos. 02-1984, 02-2489 7
§ 1109; cf. Joseph v. New Orleans Electric Pension & Retire-
ment Plan, 754 F.2d 628, 630 (5th Cir. 1985). The qualification
is potentially significant. Although the cases say that plan
amendments are not actions to which ERISA’s fiduciary
obligations attach, Hughes Aircraft Co. v. Jacobson, 525 U.S.
432, 443-45 (1999); Lockheed Corp. v. Spink, 517 U.S. 882, 890-
91 (1996); Johnson v. Georgia-Pacific Corp., 19 F.3d 1184, 1188
(7th Cir. 1994), and this is a valid generalization, one must
always be cautious about inferring a flat rule from the
general language in a judicial opinion. The principle for
which the cases that we have just cited stand—that since an
employer has no duty to create a pension or welfare plan in
the first place, neither does he have a duty to amend it to
make it more generous, or a duty not to amend it if the
amendment would make it less generous—does not bear on
a case in which amending a plan in a certain way would
operate as a breach of the plan’s fiduciary obligations be-
cause it wiped out vested benefits. See Gluck v. Unisys
Corp., 960 F.2d 1168, 1178 (3d Cir. 1992). We have greater
difficulty imagining cases in which a refusal to amend
could be a breach of fiduciary duty. But at any rate this
is not such a case. If anything, for the trustees to have
voted to cash out departing members would have vio-
lated their fiduciary duty to the remaining members, as
it would have transferred wealth from them to the de-
parting members for no reason that we can glean from the
record. In any event, this claim of breach of fiduciary duty
is also barred by the three-year statute of limitations.
AFFIRMED.
8 Nos. 02-1984, 02-2489
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—4-22-03