Opinion
Civil Action No. 01-0718, Section "K"
November 2, 2001
ORDER AND REASONS
Before this Court is Plaintiffs' Motion for Partial Summary Judgment (rec. doc. 18) and Plaintiffs' Motion for Summary Judgment as to Counterclaims Against Audrey Gaudet (rec. doc 17). After a review of the pleadings, oral presentations and the relevant law, this Court finds no merit in the first motion and as a result believes that the best course of action is to place plaintiff on notice that it intends to enter summary judgment in favor of defendants, unless plaintiff can come forward with some argument not previously made. This course of action is recognized by the United States Court of Appeals for the Fifth Circuit as noted in Nowlin v. Resolution Trust Co., 33 F.3d 498, 504 n. 9 (5th Cir. 1994) stating, "[d]istrict courts may grant summary judgment sua sponte, "so long as the losing party was on notice that she had to come forward with allow her evidence.'" Therefore, plaintiff has 10 days, exclusive of holidays from the entry of this order and reasons to present any other arguments or evidence that it has in its possession to oppose such a motion. With that in mind, the Court defers as to the second motion relating to the counterclaims as it may be rendered moot.
Background
The facts surrounding the motions before this Court stem from Audrey Gaudet's alleged entitlement to certain benefits from several pension funds under which her husband (Stanley Gaudet) was covered during the term of his employment. Those funds include: (1) the Sheet Metal Workers' National Pension Fund (NPF), (2) the Sheet Metal Workers' Local Unions and Councils Pension Fund (LUCPF), and (3) the New Orleans Sheet Metal Workers' Local Union No. 11 Pension Fund (Local 11). However, the Local 11 has since merged into the NPF. (Plans 1 and 3 will be collectively referred to in the Court's analysis as NPF)
Stanley was employed in the sheet metal trades in 1946 and became a member of the executive board of the Local 11 Union and served as its president. Between 1983 and 1989, Stanley embezzled funds from the Local II Union and its employee benefit plans. On March 21, 1991 Stanley pled guilty to 22 counts of embezzlement and theft and was sentenced to 18 years and 5 months in prison. The district court ordered Stanley to pay restitution in the amount of $2,750,538.87 to the Sheet Metal Workers' International Association. To satisfy this amount, the district court ordered Stanley to relinquish the pension funds to which he was entitled. Stanley argued on appeal that the anti-alienation provisions of ERISA prevented the district court from ordering him to relinquish his pension to fulfill the restitution amount, but because he did not object to the court's order at his sentencing, on appeal the Fifth Circuit upheld the district court's ruling under the "plain error" standard. United States v. Gaudet, 966 F.2d 959 (1992).
Audrey explained during Stanley's trial and continues to argue that she had no knowledge of Stanley's illegal actions. Rather, Stanley used the embezzled funds to pay his separate gambling debts and other separate expenses that did not inure to her benefit. Defendants, however, maintain that Audrey had knowledge of and benefitted from the substantial amount of money Stanley embezzled during their marriage. Audrey also contends that any amount of his pension fund Stanley was required to forfeit as restitution did not affect her half of the funds.
Stanley and Audrey have maintained their matrimonial domicile in Louisiana since they were married in March 1968. From March 1968 to May 2001 they lived in a community property regime. On May 14, 2001, plaintiffs entered into a Separation of Property Agreement approved by the state district court. The court's order purportedly fulfilled all requirements necessary to create a valid Qualified Domestic Relations Order (QDRO) and established Audrey as an "alternate payee" of half of Stanley's pension benefits. Specifically, the order establishing the QDRO held:
. . . that Audrey Gaudet is hereby recognized and is declared to be entitled to one-half of the pension benefits guaranteed to Stanley J. Gaudet by those certain pension plans established in his favor by the Sheet Metal Workers' Local Union No. 11 Pension fund . . .
. . . that Audrey Gaudet is hereby declared to be entitled to one-half of all pension benefit payments due and payable to Stanley Gaudet by The Sheet Metal Workers National Pension Fund, and The New Orleans Sheet Metal Workers' Local Union No. 11 Pension Fund from March 1, 1991 to the date of the signing of this judgment. Subsequent to the entry of this judgment, Audrey shall be entitled to receive one-half of all pension benefits due and owing to Stanley J. Gaudet until the time of his death . . .
Through the QDRO, Audrey claims to be the beneficiary of a half of the benefits that accrued to Stanley under the plans administered by defendants. The order and Audrey presuppose that funds were "due and owing" to Stanley.
Even though he embezzled from its pension plans, Stanley applied for retirement benefits from the Local 11. However, the Local 11 denied his request and explained that it would be a breach of fiduciary duty to pay a pension benefit to an individual who had already taken an amount of money that exceeded what he would be owed in pension benefits. Plaintiff appealed the denial of benefits and requested reconsideration, but his request was denied on August 30, 1991. The record also states that in 1992, the NPF sent Stanley the requisite forms required to receive benefits and requested that they be returned in thirty days, but he never responded.
Stanley also applied to the LUCPF for retirement benefits during his prison term. The LUCPF directed him to complete and return certain forms within thirty days to be eligible for benefits, but he did not return them. Also, after the entry of the state court judgment creating the QDRO, the LUCPF determined that the QDRO was not valid because it required payment of funds it was not legally required to disperse because Stanley had not complied with all administrative steps. Plaintiffs are entitled to an administrative appeal from that decision but have chosen to bypass that remedy.
The NPF also brought a civil action against plaintiff in the Eastern District (captioned William Mazur, et. al. v. Sanley Gaudet, Civil Action No. 89-2723) to recover losses resulting from Stanley's wrongful conversion of plan assets. On May 26, 1994 the court entered judgment in favor of the NPF against Stanley for $18,028,924 plus prejudgment interest running from September 30, 1993 through the date of the entry of judgment.
Procedural History
Plaintiffs filed the instant suit to require defendants to pay benefits allegedly owed to them under their plans. Plaintiffs' petition also prays for: (1) damages for past due benefits, future benefits, interest, attorney fees and any other equitable relief, (2) bad faith breach of contract, (3) damages for mental anguish, lost income, and other damages for wrongful deprivation of benefits due them, (4) unjust enrichment and, (5) unlawful seizure of pension benefits.
In response, NPF lodged a counterclaim against plaintiffs requesting dismissal plaintiffs' complaint. Generally, the NPF argued that Stanley already obtained overpayment of any pension benefits that he claims are owed to him through benefits he and Audrey experienced from his embezzlement of plan assets. Specifically, defendants sought: (1) declaratory relief that they were entitled to recover the overpayments of benefits received by Stanley Gaudet as a result of his embezzlement of pension plan assets from NPF by offsetting pension benefits that otherwise would be payable to Stanley, (2) declaratory relief that the NPF should be allowed to recover any overpayments made to Audrey through a setoff of such amounts of any survivor annuity she would otherwise be entitled to receive because she knew or should have known her husband was embezzling assets and that that knowledge constituted a premature actual or constructive receipt of benefits she would be entitled to, (3) an order requiring Stanley to fully satisfy the judgment against him in favor of NPF, (4) an order requiring Stanley to pay the NPF, on the 15th of each month, an amount equal to any benefits received prior to the date of the Mazur judgment because defendants believe the Mazur judgment will not satisfy the entire debt owed to NPF. defendant's fourth cause of action sought, and (5) a declaration that plaintiffs' Separation of Property Agreement is illegal and ineffective because it was procured for the improper purpose of thwarting NPF from obtaining satisfaction of the civil judgment against Stanley.
Partial Motion for Summary Judgment
Plaintiff's Partial Motion for Summary Judgment seeks declaration that Audrey is entitled to benefits from defendants as an alternate payee under the QDRO issued by the Twenty Ninth Judicial District for St. Charles Parish. Plaintiff alleges that: (1) the QDRO is valid on its face and fulfills all requirements necessary to allow Audrey to collect her half of the pension proceeds due to her husband, (2) under the community property regime benefits that accrue to one spouse during the marriage are equally the property of both spouses, (3) all requirements for a valid QDRO have been satisfied including the name and mailing address of the participant, the amount or percentage of the participants benefits to be paid under the plan, and the number of payments due and, (4) an extrinsic attack on the QDRO should not be permitted because such challenges are not warranted unless the state court was without jurisdiction to enter the QDRO. Finally, plaintiffs claim that it would have been futile to comply with all of the administrative hurdles because it was clear that neither fund was going to pay her the pension she requested.
However, defendant (NPF) claims that plaintiffs partial motion for summary judgment is moot because plaintiffs are not owed any pension benefits. It is the NPF's position that Stanley has already received more than any amount owed under the plan from the funds he embezzled. Furthermore, Audrey's rights under the QDRO are purely derivative of Stanley's rights to receive pension funds from the plan. Therefore, because Stanley is not owed any benefits, Audrey has no entitlement to the NPF funds.
Defendant (LUCPF) asserts that there are material issues of fact sufficient to justify denial of the Partial Motion for Summary Judgment because Audrey Gaudet failed to exhaust the administrative remedies required to receive benefits. First, Stanley failed to complete the requisite forms within the appropriate time frame to receive his pension from the LUCPF. Furthermore, the LUCPF argues that their decision that the QDRO is not valid is subject to administrative appeal; but plaintiff has chosen to bypass those remedies. Defendants also rely on the reasoning set forth in Bourgeois v. The Pension Plan for the Employees of Santa Fe International Corporations, 215 F.3d 475 (5th Cir. 2000), in which the Fifth Circuit held that "claimants seeking benefits from an ERISA plan must exhaust available administrative remedies under the plan before bringing suit to recover benefits."
Motion for Summary Judgment as to the Counterclaims Against Audrey Guadet
Plaintiff's Motion for Summary Judgment, argues that the second and fifth counterclaim are governed by the civil enforcement provisions of ERISA and are extinguished by the statue of repose. See 29 U.S.C. § 1132 and Harris Trust Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000) Therefore, defendant should not be permitted to use the counterclaims to offset NPF's obligation to pay Audrey under the terms of the QDRO. Thus, Plaintiff concludes that she is entitled to judgment as a matter of law because that there are no issues of material fact to be resolved on these counterclaims.
To support its argument, plaintiffs explain that: (I) Audrey is anon-fiduciary of the NPF who allegedly acted as a prohibited transferee of plan asserts taken in breach of Stanley's fiduciary duty to the plans ( 29 U.S.C. 1132), (2) under 29 U.S.C. § 1113, actions brought against a non-fiduciary prohibited transferee can not be initiated more than six years after the alleged breach or, in cases of fraud or concealment, after six years of knowledge of the breach, (3)because Stanley's embezzlement of pension funds occurred in the 1980's and he was subject to a civil judgment in 1994 and because defendants' claims against Audrey stem from the embezzlement, any claims against Audrey for participation in Stanley's breach of the fiduciary duty are extinguished, (4) under ERISA, once six years has passed from the time of the breach, no action can serve as the basis for requesting damages or as a means of offsetting obligations owed to the allegedly breaching party and, (5) 29 U.S.C. § 1113 is not subject to equitable tolling ( Radford v. General Dynamics Co., 151 F.3d 396 (5th Cir. 1998).
The NPF, however, contends that there are material issues of fact sufficient to defeat the plaintiff's Motion for Summary Judgment and argues that: (1) 29 U.S.C. § 1113 limits the period during which an action maybe commenced with respect to a fiduciary's breach of any responsibility, duty or obligation under Part 4 of ERISA, (2) while civil actions commenced under Title I of ERISA are enumerated in 29 U.S.C. § 1132(a), not all of those listed relate to Part 4, (3) the Court must examine the nature of the civil action under 29 U.S.C. 1132(a) in order to determine whether it is an action with respect to a fiduciary breach or violation of Part 4, (4) the second counterclaim should be regarded as an act in recoupment that did not arise until plaintiffs filed the instant action to recover benefits and, and (5) ERISA's Treasury Regulations recognize the validity of recoupment and posit that a counterclaim in the nature of recoupment is never time barred by the statute of limitations as long as the main action itself is timely.
Thus, defendants conclude that whether their claims against Audrey arise separate and apart from Stanley's embezzlement, presents a factual issue to be resolved at trial and is not suitable for summary judgment.
Analysis
Plaintiff's Motion for Summary Judgment The NPF Pension Plan
As to the NPF plan, the Court is faced with a factual scenario distinguishable from others previously presented in this Circuit. Stanley Gaudet, as trustee for his union and its pension plans, embezzled an amount of money more than he would have legally received from the NPF pension plan. Plaintiffs claim that Audrey's rights under Stanley's pension plans were never forfeited by Stanley's criminal acts or the judgments rendered against him and are ripe for payment. Specifically, Audrey Gaudet claims that through the QDRO created by the district court, she is entitled to a half of any benefits owing to Stanley Gaudet. This Court agrees that the QDRO entitles Audrey to a half of any benefits owed to Stanley. However, this Court emphasizes that the language of the QDRO makes Audrey's alleged entitlement to benefits purely derivative of any amount of pension owed to Stanley. Under a logical interpretation of that order, if Stanley is not entitled to any benefits under the pension plan (because he has already received more than his pension), Audrey can not claim any independent right to more benefits under the plan.
Jurisprudential History
In Guidry v. Sheet Metal Workers Nat'l Pension Fund, 493 U.S. 365 (1990), the United States Supreme Court was faced with a factual scenario in which a union official embezzled funds from the union. When he applied for benefits from one of the union-sponsored plans, his request was denied. The district court held that any plan benefits otherwise payable to plaintiff should be held in a constructive trust until he payed off all amounts he owed to the union. This decision was based in part on the court's reference to the equitable provisions of 29 U.S.C. § 409(a) which imposes liability on a breaching fiduciary to "make good" any losses suffered by a plan because of the breach. Furthermore, the district court interpreted 409(a) as an exception to 29 U.S.C. § 209(d)(1) which prohibits assignment or alienation of benefits under a plan ("anti-alienation provisions").
On appeal, the United States Supreme Court reversed and held in part that § 409(a) may provide relief for a breach of a fiduciary duty to a plan but noted that the plaintiff in Guidry had breached his fiduciary duty to the union (not the plans). The Court specifically left open the question presented in this case noting, "[w]e need not decide whether the remedial provisions contained in § 409(a) supercede the bar on alienation in § 206(d)(1) since petitioner has not been found to have breached any fiduciary duty to the pension plans." Guidry at 686. The Court also noted that under the proscriptions of § 206(d)(1):
courts should loath to announce equitable exceptions to legislative requirements or prohibitions that are unqualified bu the statutory text . . . 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 reinforced our conclusion that the identification of any exception should be left to Congress. Guidry at 688.
In McLaughlin v. Lindemann, Herberger Shaunbaum, 853 F.2d 1307 (5TH Cir. 1988), Lindemann was the trustee of a pension plan who breached his obligations to the plan and Theodore Shaunbaum, was held liable, "as a "nonfiduciary' who knowingly participated in the trustee's breach" of [his] fiduciary duty to the plan." McLaughlin at 1309 (5th Cir. 1988). The district court permitted the plan to offset payments owed to Shaunbaum based on his knowing participation in the misconduct that had harmed the plan. However, the Court did not permit payments owed to Bernice Shaunbaum (Theodore's ex-wife) to be offset against Theodore's breach because "to permit the Trustee to offset the payments due to Bernice against the post-divorce judgment against Theodore would conflict with" Texas community property law.
The Fifth Circuit reversed and held that an offset was not permitted against Theodore Shaunbaum. The Court distinguished the facts from those presented in Crawford v. La Boucherie Bernard, 815 F.2d 117 (U.S. App. D.C. 1987), where the D.C. circuit had permitted an offset predicated on a breach of fiduciary duty by a plan trustee, noting, "whether the holding in Crawford was proper is a matter we need not decide, Lindemann, not Shaunbaum, was trustee if the Pension Plan when" the breach occurred. McLaughlin at 1309.
Herberger v. Shaunbaum, 897 F.2d 801 (5th Cir. 1990), involved many of the same "participants" as those in McLaughlin. In Herberger, however, a third party sought to recover salary and bonuses from his Pension Plan claiming that he had earned them while employed by Grayson Company — a company owned by Shaunbaum, Carp (another individual) and the Pension Plan. The Pension Plan settled with the third party and a state court later awarded the Plan a $20,000 indemnification judgment against Shaunbaum. When it could not collect the judgment outright from Shaunbaum, the Plan sought to offset its outstanding judgment against Shaunbaum's monthly pension benefits. The federal district court allowed the offset.
On appeal, the Fifth Circuit reversed and held that the anti-alienation provisions of ERISA precluded an offset against a participant's pension interest in a plan covered by ERISA based on the participant's beach of fiduciary duty to the same plan. In its decision, the Court distinguished the holding in Guidry from that of Crawford v. La Boucherie Bernard, 815 F.2d 117 (U.S. App. D.C. 1987), where the court carved out an exception to the anti-alienation rule and allowed a judgement predicated on a breach of fiduciary duty by a plan trustee to be offset against the trustee's pension benefits. Explaining its decision to follow the decision of Guidry and depart from the Court's holding in Crawford, the Fifth Circuit offered the following justifications: (1) the Crawford court's reliance on ERISA's legislative history to create an exception for trusts out of the anti-alienation provisions was not persuasive, (2) the jurisprudence relied on in Crawford was rejected by the Court in Guidry, and (3) the fact that Congress amended the ERISA statute to allow an exception to the anti-alienation rule for QDRO's, suggests that Congress will create exceptions where it sees fit and the courts should not do so on their own accord.
However, in another post-Guidry case, Coar v. Kazmir, 990 F.2d 1413 (1993), the Third Circuit agreed with the D.C. Circuit and held that ERISA anti-alienation provisions did not preclude pension plan trustees from withholding vested pension benefits from a beneficiary who was also a former trustee through a set off to recover damages incurred by the beneficiary's breach of fiduciary duty to the plan. In allowing the offset, the Third Circuit distinguished Guidry and Herberger and reasoned in part that: (1) nothing in the ERISA anti-alienation provisions suggests that Congress intended that provision to limit the equitable remedies afforded to beneficiaries under § 409(a), (2) because the anti-alienation provisions are intended to protect plan beneficiaries by ensuring that assets are used only for the payment of benefits, Congress's intent would be undermined by an interpretation that allowed further payments to one who had already "looted" the fund rather than preserving it for the beneficiaries use, and (3) given § 409(a)'s mandate that trustees must undo any harm they have done to the pension plan and the absence of any language in § 206(d)(1) or its legislative history limiting the range of options granted to the courts in ERISA, it is unlikely that Congress intended the anti-alienation provisions to dilute potential relief available to pension beneficiaries.
The Court further distinguished Guidry explaining that in that case, the Court had been called to reconcile provisions of conflicting statutes (ERISA and the Labor Management Reporting and Disclosure Act "LMRDA") and it held that there was no justification for one of the statutes to override the other. In Coar, however, the Third Circuit reasoned that when faced with conflicting provisions of the same (ERISA) statute, there was no legislative history to support the assumption drawn in Herberger that § 206(d)(1) should override or limit the remedies available under § 409(a).
While this Court is aware of the cautioning language used by the Supreme Court in Guidry and interpretation of that case in Herberger, this Court finds the facts of this case distinguishable from the earlier cases. For example, in Guidry, the petitioner stole funds from the union, but not the retirement plans themselves. In McLaughlin, the petitioner was a "non-fiduciary" who had knowledge of a breach of the trustee's fiduciary duty to the plan — but did not actively commit any breach himself. Similarly, Herberger dealt with a fiduciary's liability to a third party seeking bonuses and salaries earned during his employment and the ability of the fiduciary's Pension Plan to recover, through an offset, the money it was required to pay the third party. In none of these cases has any court been presented with a factual scenario in which a fiduciary breached his duty to the plan itself, stole more money than he would be entitled to under his pension plan, and then claimed entitlement to even more retirement funds from the plan (whether the funds be for himself or his spouse).
Furthermore, this Court notes that one of the purposes of ERISA was to protect all beneficiaries if a retirement plan. To allow plaintiff, in essence, to receive double benefits under the plan could penalize innocent beneficiaries and would defy common sense and the fundamental protections under ERISA. As defendants succinctly argued:
[T]he reality of the situation is that Stanley Gaudet has already received all of the benefits that he accrued under the NPF, plus a great deal more. Hence, no pension benefits (past, present, or future) are owed to Stanley Gaudet by the NPF. This reality is not altered by the fact that Stanley Gaudet imprudently decided to distribute the pension funds to himself long before he retired and may have squandered all of those monies on gambling trips to Las Vegas. Opposition to Motion for Summary Judgment, p. 11.
This Court agrees with defendant's position and holds that it would be ludicrous and entirely inequitable to require defendants to pay plaintiff pension benefits when he has already taken more than he would be owed under the plans. Furthermore, this Court is mindful of its power under § 1109(a) to hold a fiduciary liable for a breach of his fiduciary duty to a pension plan and to impose whatever "other equitable or remedial relief' it deems appropriate. Given the facts presented in this case and emphasizing that plaintiff has already received more than his pension entitlement, this Court holds that because Stanley is not entitled to any pension funds, Audrey has no claim against the Pension Plans for any derivative benefits.
In Herberger, as well as the other cases discussed herein, the respective courts characterized the nature of the dispute as an attempt to offset one debt ostensibly owed for another debt owed to the opposing party. The petitioner in Herberger, for example, allegedly had vested rights in a Pension Plan and claimed he was entitled to his funds from it. Because he had breached a fiduciary duty to the Plan, its representatives claimed petitioner owed the Plan for damages it had incurred — creating the classic offset paradigm. The case at bar is again factually distinguishable. The defendant, NPF, does not have any financial obligation to pay Stanley Gaudet any funds from his pension plan. That obligation was discharged when Mr. Gaudet embezzled the amount due him many times over. Therefore, he has received and expended his pension funds, albeit illegally, and there is nothing left to pay. Thus, unlike Herberger, there is no offset and the rationale of that case is not applicable.
This Court is also keenly aware of state community property law that entitles each spouse to one half of all "property acquired during the existence of the legal regime through the effort, skill, or industry of either spouse." Louisiana Civil Code Article 2338. Retirement benefits earned by the employee spouse during the existence of the legal regime are no exception to that rule. See for example Sims v. Sims, 358 So.2d 919 (La. 1978). The QDRO at issue in this case correctly vested Audrey with the right to a half of any pension benefits owed to Stanley. In McLaughlin v. Lindemann, Herberger Shaunbaum, 853 F.2d 1307 (5th Cir. 1988), the district court did not permit a Pension Plan to offset a wife's claim to a half of her husband's retirement benefits against damages owed by her husband for his breach of fiduciary duty. However, in that case, there was no allegation that the husband had already received more than his pension plan permitted during their marriage. It is the position of this Court that Stanley has already received and spent his pension benefits. Therefore, as noted above, it would be illogical and unfair to the NPF and its participants to allow Stanley to receive even more funds from the plan. If Audrey indeed does have clean hands, her remedy should be against Stanley and not the Pension Plans.
The LUCPF Pension Plan
Furthermore, this Court also holds that plaintiff's partial motion for summary judgment should be denied pending fulfillment of all administrative remedies imposed by the LUCPF plan. The Fifth Circuit's reasoning in Bourgeois v. Pension Plan for the Employees of Santa Fe International Corporations, 215 F.3d 475 (5th Cir. 2000), clearly holds that an employee's failure to exhaust administrative remedies could not be excused on grounds of futility. The Fifth Circuit has indicated that futility may be established only when the plan administrator is hostile or biased against the claimant. Denton v. First Nat. Bank of Waco, 765 F.2d 1295 (1985). Furthermore, the Court explained in Meza v. General Battery Co., 908 F.2d 1262 (5th Cir. 1990), that plaintiffs seeking ERISA plan benefits are bound by the plan's administrative procedures and must use them before filing suit even if they have no notice of what those procedures are.
Plaintiff has not persuaded this Court that his adherence to administrative remedies is futile under the analysis provided by the Fifth Circuit. Therefore, plaintiff's Partial Motion for Summary Judgment against LUCPF is DENIED.
Accordingly, it is ORDERED that Plaintiffs' Motion for Partial Summary Judgment (rec. doc. 18) against NPF and LUCPF will be DENIED and summary judgment rendered in favor of NPF and LUCPF unless plaintiff can come forward within 10 days from the entry of this order and present some argument not previously made. Additionally, the Court defers on Plaintiffs'' Motion for Summary Judgment as to Counterclaims Against Audrey Gaudet (rec. doc 17) until the Partial Motion for Summary Judgment is resolved.