June 29, 1984
TED KATSAROS, JOHN KUEBLER, ROBERT TROTT, LAWRENCE KUDLA, AND CHARLES CURD, AS PARTICIPANTS IN THE TEAMSTERS LOCAL 282 PENSION TRUST FUND, PLAINTIFFS-APPELLEES,
JOHN CODY, ROBERT SASSO, JOHN DEE, WILLIAM ARGENTO, RALPH GUERCIA, HERBERT SCHNEIDER AND LOUIS NAPPI, AS TRUSTEES OF THE TEAMSTERS LOCAL 282 PENSION TRUST FUND, DEFENDANTS-APPELLANTS, ANTHONY G. ANGELOS, C. J. BASSLER, JR., JONATHAN T. HOWE, CLARENCE L. JENSEN, LAMBROSE KARKAZIS, JAMES C. KIRIE, JAMES KOKONAS, AND JAMES VERROS, THIRD PARTY-DEFENDANTS, LOCAL 282 INTERNATIONAL BROTHERHOOD OF TEAMSTERS, CHAUFFERS, WAREHOUSEMEN AND HELPERS OF AMERICA, MICHAEL CARBONE, MICHAEL BOURGAL, JOSEPH MATTARAZZO AND EDWARD SILVERA, INTERVENORS; RAYMOND J. DONOVAN, SECRETARY OF UNITED STATES DEPARTMENT OF LABOR, PLAINTIFF-APPELLEE, V. JOHN CODY, WILLIAM ARGENTO, JOHN DEE, RALPH GUERCIA, LOUIS G. NAPPI, ROBERT SASSO, AND HERBERT SCHNEIDER, AND THE TEAMSTERS LOCAL 282 PENSION TRUST FUND, DEFENDANTS, JOHN CODY, WILLIAM ARGENTO, JOHN DEE, RALPH GUERCIA, LOUIS G. NAPPI, ROBERT SASSO, AND HERBERT SCHNEIDER, DEFENDANTS-APPELLANTS, JOHN CODY, WILLIAM ARGENTO, JOHN DEE, RALPH GUERCIA, LOUIS G. NAPPI, ROBERT SASSO, AND HERBERT SCHNEIDER, THIRD PARTY PLAINTIFFS-APPELLANTS, V. ANTHONY G. ANGELOS, C. J. BASSLER, JR., JONATHAN T. HOWE, CLARENCE L. JENSEN, LAMBROSE KARKAZIS, JAMES C. KIRIE, JAMES KOKONAS, ANTON A. SMIGIEL, JAMES VERROS AND HERBERT C. WENSKE, THIRD PARTY DEFENDANTS
Appeal from orders and judgments entered in the Eastern District of New York, Jacob Mishler, Judge, finding the appellants jointly and severally liable for losses incurred on account of breaches of their fiduciary duties under the Employment Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001, et seq., and removing the appellants as trustees of four union trust funds in favor of a court-appointed fund manager and an asset manager.
Lumbard, Mansfield and Kearse, Circuit Judges.
Appellant trustees*fn1 of the Teamsters Local 282 Pension Trust Fund, Welfare Trust Fund, Annuity Trust Fund, and Legal Services Trust Fund appeal from various judgment and orders*fn2 entered in the Eastern District of New York after a bench trial by Judge Jacob Mishler finding them jointly and severally liable for losses incurred by the Local 282 Pension Trust Fund ("Pension Fund") on account of breaches of their fiduciaries duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001, et seq., and removing them from their positions as trustees of four funds in favor of a fund manager and an asset manager appointed by the court to serve until March 31, 1985.
This appeal arises out of two separate actions consolidated by the district court, one of which was filed by a group of participants in the Pension Fund ("the private plaintiffs") and the other by the United States Secretary of Labor ("the Secretary"). Both actions alleged that the appellant trustees violated their fiduciary duty under ERISA when they made a $2 million loan in 1979 to Des Plaines Bancorporation, Inc. ("Bancorporation"). The private plaintiffs' action also alleged that the trustees violated their fiduciary duty under ERISA when they failed to collect $23,474 plus interest from one Hyman Green in connection with an aborted loan to Green in 1978. Appellants, joined in part by two intervenors -- the Association of the New York City Concrete Producers, Inc. and Local 282 of the International Brotherhood of Teamsters*fn3 -- argue that the court below erred in the following respects:
(1) in finding that the trustees violated their fiduciary duty under ERISA with respect to the Bancorporation loan and the Hyman Green loan;
(2) in finding them jointly and severally liable for all losses incurred on account of those loans;
(3) in removing them as trustees of the four funds in favor of a court appointed asset manager and fund manager authorized to serve until March 31, 1985;
(4) in denying their request for a jury trial;
(5) in severing the third-party claims asserted by appellants against others;
(6) in bifurcating the trial into liability and damages phases; and
(7) in Judge Mishler's refusal to recuse himself.
We affirm the orders of the district court with the exception of the appointment of the fund manager to oversee the operation of the fund until March 31, 1985. We conclude that the fund manager should perform his duties only until the union and the employers' association have chosen successor trustees who are acceptable to the court.
In February 1978, at a time when the assets of the Pension Fund were approximately $58 million, the trustees of that fund approved a $35 million loan to Hyman Green, $20 million of which was to be used to purchase 10 acres of land and construct a hotel and gambling casino on the "Strip" in Las Vegas, Nevada, and $15 million of which was to be used to purchase certain property from the Pension Fund in Southampton, New York. As part of the loan agreement, Green expressly assumed responsibility for the Pension Fund's expenses in arranging the loan transaction. In April 1978, the United States Secretary of Labor commenced an action seeking to enjoin the Pension Fund and the trustees from making the loan to Green. In August 1978 Judge Mishler issued an order and judgment finding that the proposed loan violated the investment diversification and "prudent man" sections of ERISA, 29 U.S.C. § 1104(a)(1)(B) and (C).*fn4 Marshall v. Teamsters Local 282 Pension Fund, 458 F. Supp. 986 (E.D.N.Y. 1978). He enjoined the Pension Fund and the trustees from loaning the Fund's assets to Green and ordered the trustees to indemnify the Fund for any losses the Fund suffered as a result of the loan.
In November 1980 Green sued the Fund. The Fund counterclaimed for the $23,474 in expenses incurred by it in arranging the loan which had not been reimbursed by Green. Green's claim and the counterclaim are presently pending before Judge Mishler. The private plaintiffs then commenced this action in July 1981 seeking the $23,474 in unreimbursed expenses plus interest incurred in connection with the Green loan.
In the meantime, in January 1979, five months after Judge Mishler had enjoined the Fund's loan to Green, Anthony G. Angelos, president and chairman of the board of Bancorporation, informed John Cody, the Administrator of the Pension, Welfare, and Annuity Funds, that Bancorporation was seeking a loan by March 1, 1979, for its wholly owned subsidiary, the Des Plaines Bank ("the Bank"). On February 7, 1979, Johnathan T. Howe, a director and counselor to Bancorporation and counsel to the Bank, at Cody's suggestion wrote to Cody applying for a $2 million loan from the Fund to the Bank. Cody arranged for Howe to meet with the Fund's trustees at their February 27, 1979 meeting, which was the first time any of the trustees other than Cody learned of the proposed loan. At the meeting Howe distributed various financial statements of Bancorporation and the Bank: the consolidated financial statements of Bancorporation and the Bank as of December 31, 1978, and a comparative schedule of assets of the Bank as of December 31, 1977, November 30, 1978, and December 31, 1978. The three documents consisted of about 35 pages of figures and explanatory notes. Howe and Angelos make a two-hour presentation to the trustees and their certified public accountant, Harvey Colton, touching "on the highlights of the statement."
At trial Colton testified that neither he nor anyone on the Fund's staff had sufficient training to express an opinion as to the soundness of the loan. None of the trustees had an accounting or banking background. They were wholly unequipped personally to analyze the figures presented to them to find out whether any serious financial problems were faced by the prospective borrower. They lacked any expertise in such important matters at capital adequacy, quality of assets, liquidity, the value of the bank's stock, and the like. In short, they passively received a rosy superficial picture of the bank and its holding company from persons ...
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