Jordan v. MI Conference ( 2000 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
16 Jordan, et al. v. Michigan Nos. 98-1885/2113 Pursuant to Sixth Circuit Rule 206
Conference of Teamsters, et al. ELECTRONIC CITATION: 2000 FED App. 0105P (6th Cir.)File Name: 00a0105p.06
have failed to advance. The IBT does not explain how
Plaintiffs’ representation has been lacking in vigor. Indeed, UNITED STATES COURT OF APPEALS
we need only peruse Plaintiffs’ brief on appeal to appreciate
the thoroughness of Plaintiffs’ representation. Given the FOR THE SIXTH CIRCUIT
IBT’s failure to identify any potential inadequacy in _________________
Plaintiffs’ continued representation of the IBT’s interests on
appeal, along with the untimeliness of the motion, we
;
conclude that the IBT’s motion to intervene was properly

denied. ROBERT JORDAN, et al.

(98-1885),

For the reasons set forth above, we REVERSE the district Plaintiffs-Appellants,

court’s order finding that Plaintiffs’ remittance of attorney’s Nos. 98-1885/2113

fees to the IBT would constitute a prohibited transfer, and
INTERNATIONAL >

AFFIRM the district court’s order denying the IBT the right
BROTHERHOOD OF

to intervene in this action.

TEAMSTERS, AFL-CIO
Appellant, 
(98-2113),


v. 



MICHIGAN CONFERENCE OF

TEAMSTERS WELFARE FUND,
Defendants-Appellees. 
et al.,

1
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 96-73113—Nancy G. Edmunds, District Judge.
Argued: September 22, 1999
Decided and Filed: March 24, 2000
1
2 Jordan, et al. v. Michigan Nos. 98-1885/2113 Nos. 98-1885/2113 Jordan, et al. v. Michigan 15
Conference of Teamsters, et al. Conference of Teamsters, et al.
Before: MERRITT and CLAY, Circuit Judges; ALDRICH, required on the part of the IBT to recognize that it believed
District Judge.* the IBT’s interests were implicated, and could have
intervened in the suit before the final judgment was issued.
_________________ See Cuyahoga Valley Ry. Co. v. Tracy, 6 F.3d 389, 396 (6th
Cir. 1993) (denying motion to intervene where the intervenors
COUNSEL filed their motion after final judgment was entered, even
though the intervenors long knew of their interest in the
ARGUED: Charles R. Both, YABLONSKI, BOTH & outcome). The IBT chose to remain silent throughout the
EDELMAN, Washington, D. C., Patrick J. Szymanski, litigation process and instead permitted Plaintiffs to resolve
BAPTISTE & WILDER, Washington, D.C., for Appellants. the claims. As this Court stated in Cuyahoga Valley, “[t]he
Mark D. Wagoner, Jr., SHUMAKER, LOOP & KENDRICK, intervenors chose to rely in the Attorney General’s best
Toledo, Ohio, for Appellees. ON BRIEF: Charles R. Both, efforts, which they were entitled to do. They are not,
YABLONSKI, BOTH & EDELMAN, Washington, D. C., however, entitled to then enter the proceedings after the case
Michael J. Passino, LASSITER, TIDWELL & has been fully resolved, in an attempt to achieve a more
HILDEBRAND, Nashville, Tennessee, Anne Curry satisfactory resolution.” Id.Thompson, KELMAN, LORIA, SIMPSON, WILL,
HARVEY & THOMPSON, Detroit, Michigan, Elizabeth Further, the IBT has not met its burden of demonstrating
Grdina, INTERNATIONAL BROTHERHOOD OF that Plaintiffs would inadequately represent its interest on the
TEAMSTERS, LEGAL DEPARTMENT, Washington, D.C., attorney’s fees issue. While this burden is minimal because
for Appellants. Michael M. Briley, SHUMAKER, LOOP & the movant need not prove that the representation will in fact
KENDRICK, Toledo, Ohio, Michael J. Mills, LAW be inadequate, but only that it “may be” inadequate, Miller,
OFFICES OF MICHAEL J. MILLS, Bloomfield Hills, 103 F.3d at 1247 (quoting Linton v. Commissioner of Health
Michigan, Claudia D. Orr, BARRIS, SCOTT, DENN & and Env’t, State of Tenn., 973 F.2d 1311, 1319 (6th Cir.
DRIKER, Detroit, Michigan, Gerry M. Miller, PREVIANT, 1992)), this Court has held that a movant fails to meet his
GOLDBERG, UELMAN, GRATZ, MILLER & burden of demonstrating inadequate representation when 1)
BRUEGGEMAN, Milwaukee, Wisconsin, for Appellees. no collusion is shown between the existing party and the
opposition; 2) the existing party does not have any interests
_________________ adverse to the intervener; and 3) the existing party has not
failed in the fulfillment of its duty. See Bradley v. Milliken,
OPINION 828 F.2d 1186, 1192 (6th Cir. 1987).
_________________
In this case, it is clear that Plaintiffs are not in collusion
CLAY, Circuit Judge. Plaintiffs Robert Jordan, David Iho, with the MCTWF. Plaintiffs have no interests adverse to the
Patrick Reardon and Bill Sercombe appeal from the order IBT, and Plaintiffs have actively and thoroughly litigated the
entered by the district court approving a settlement of attorney’s fees issue at every stage of this suit. The IBT’s
Plaintiffs’ ERISA class action suit brought against only argument is that the IBT would be more vigorous in
pursuing its claim for reimbursement than Plaintiffs.
*
However, the IBT does not identify a single argument that the
The Honorable Ann Aldrich, United States District Judge for the IBT would have made in support of its position that Plaintiffs
Northern District of Ohio, sitting by designation.
14 Jordan, et al. v. Michigan Nos. 98-1885/2113 Nos. 98-1885/2113 Jordan, et al. v. Michigan 3
Conference of Teamsters, et al. Conference of Teamsters, et al.
of a motion to intervene pursuant Rule 24(a)(2), we review Defendants, 1the Michigan Conference of Teamsters Welfare
the district court’s timeliness determination for abuse of Fund, et al., wherein the court found that any remittance of
discretion, where the three remaining Rule 24(a)(2) factors attorney’s fees advanced from funds awarded by the district
are reviewed de novo. See id. A district court abuses its court to the International Brotherhood of Teamsters AFL-CIO
discretion “when it relies on clearly erroneous findings of (“IBT”), constitutes a prohibited transfer of plan assets for the
fact, or when it improperly applies the law or uses an benefit of a party in interest. The IBT appeals from the order
erroneous legal standard.” Phelan v. Bell, 8 F.3d 369, 372 entered by the district court denying their motion to intervene
(6th Cir. 1993). In denying the IBT’s motion to intervene for in this action. For the reasons set forth below, we REVERSE
purposes of the reimbursement of attorney’s fees issue, the the district court’s order finding that Plaintiffs’ remittance of
district court found that the IBT’s motion was untimely and attorney’s fees to the IBT would constitute a prohibited
that intervention was unnecessary because Plaintiffs could transfer and AFFIRM the district court’s order denying the
adequately represent the IBT’s interests on appeal. IBT’s motion to intervene in this action.
The question of timeliness is considered with regard to five I.
factors: 1) the point to which the suit has progressed; 2) the
purpose for which the intervention is sought; 3) the length of Plaintiffs are participants in the Michigan Conference of
time preceding the application during which the proposed Teamsters Welfare Fund, (“MCTWF”), which provides health
intervenor knew or reasonably should have known of his care and other welfare benefits to approximately 17,000
interest in the case; 4) the prejudice to the original parties due members of the IBT. In July 1996, Plaintiffs filed a class
to the proposed intervenor’s failure, after he or she knew or action complaint against MCTWF and the other Defendants
reasonably should have known of his interest in the case, to alleging violations of the Employment Retirement Income
apply promptly for intervention; and 5) the existence of Security Act (“ERISA”), 29 U.S.C. § 1001, and the Labor
unusual circumstances militating against or in favor of Management Relations Act, 29 U.S.C. § 185, in connection
intervention. See Grubbs v. Norris, 870 F.2d 343, 345 (6th with Defendants’ administration of this fund.
Cir. 1989).
The parties subsequently agreed to settle all disputes and
The IBT did not file its motion for intervention until after signed a comprehensive Stipulation and Agreement of
the district court issued its final judgment concerning the Settlement on January 21, 1998 (“Settlement Agreement”).
attorney’s fees and costs award. We find that the IBT’s In relevant part, the Settlement Agreement provided that the
failure to intervene before final judgment was entered renders MCTWF would pay Plaintiffs’ counsel its reasonable
the motion untimely. The IBT was aware of its interest in the attorney’s fees. The agreement read in part as follows:
attorney’s fees issue before Defendants knew of the IBT’s
monetary stake in the settlement outcome; the IBT also had
numerous opportunities to intervene in this litigation in order
to safeguard its interests on the attorney’s fees issue, ranging 1
from January 21, 1998, when the Settlement Agreement was William A. Bernard, Robert F. Rayes, H.R. Hillard, Robert J.
Lawlor, Motor Carriers Employers Association of Michigan, Ray Buratto,
signed, to June 15, 1998, when the district court held that Michigan Cartagemens Association, Howard McDougall, and Teamsters
Plaintiffs’ attorney’s fees award could not include the amount Joint Council were also named as Defendants. Plaintiffs are suing
previously advanced by the IBT. Hence, no foresight was individually on their own behalf and on behalf of the beneficiaries and
participants in the Michigan Conference of Teamsters Welfare Fund.
4 Jordan, et al. v. Michigan Nos. 98-1885/2113 Nos. 98-1885/2113 Jordan, et al. v. Michigan 13
Conference of Teamsters, et al. Conference of Teamsters, et al.
Counsel for Plaintiffs shall be entitled to seek and The district court misconstrued the language of § 408(b)(2),
receive an award of reasonable attorney fees from by accepting the application of the section proposed by
defendant MCTWF to be determined by the Court. The Defendants, which is to limit payment for “services.”
amount of the attorney fees sought by Counsel for Specifically, the district court opined that the problem with
Plaintiffs will be on the basis of “lodestar” approach. this argument is that § 408(b)(2) speaks to services and
See generally, Building Service Local 47 Cleaning § 406(a)(1)(C) is the only § 406 transaction which addresses
Contractors Pension Plan, et al. v. Grandview Raceway, the “furnishing of . . . services,” which would lead the district
et al., 46 F.3d 1392 (6th Cir. 1995). Nothing in this court to conclude that § 408(b)(2) provides an exemption only
paragraph shall be deemed a waiver of any right of any for § 406(a)(1)(C) transactions. Because Defendants’
Settling Party or participant/beneficiary to object to the objections relied on § 406(a)(1)(D), which prohibits “transfer
reasonableness of the fees. Payment of such fees to, or use by or for the benefit of, a party in interest, of any
awarded shall be the sole responsibility of MCTWF. No assets of the plan . . .”, nothing in § 408(b)(2) speaks to assets
additional fees shall be sought by Counsel for Plaintiffs transfers. The district court found the § 408(b)(2) exemption
for activities connected with the monitoring of this inapplicable to the Defendants’ objections. We find no
Agreement after the approval of attorney fees in this support for the district court’s interpretation. The language in
case by the Court, as set forth above. § 408(b) explicitly states that “[t]he prohibitions provided in
§ 406 will not apply” to reasonable arrangements with a party
(J.A. at 190.) After a hearing on January 29, 1998, the district in interest for legal services. Nowhere is it mentioned that the
court certified Plaintiffs’ class, tentatively approved the exemption should apply only to § 406(a)(1)(D) and not to
Settlement Agreement, and approved the proposed class § 406(a)(1)(C). Accordingly, we find that the district court
notice in all respects. erred in finding that any remittance of advanced attorney’s
fees to the IBT constitutes a prohibited transfer of plan assets
Plaintiffs’ counsel first disclosed the IBT’s role in helping for the benefit of a party in interest.
to finance the litigation in affidavits submitted in support of
their request for attorney’s fees. Defendants subsequently III.
objected to Plaintiffs’ attorney’s fees request on grounds that
any money paid to Plaintiffs’ counsel that would then be Motion to Intervene
turned over to the IBT as reimbursement would constitute a
prohibited transaction under ERISA § 406(a)(1)(D), which The IBT argues that the district court abused its discretion
prohibits a benefit plan from transferring assets to a party in when it denied its motion to intervene. A party moving to
interest. Although Defendants agreed with the stated value of intervene under Federal Rule of Civil Procedure Rule
Plaintiffs’ counsel’s services and had no objection to the 24(a)(2) must satisfy four requirements before intervention as
amount requested on those grounds, they objected to any of right will be granted: 1) timeliness of the application to
attorney’s fee award that would compel the MCTWF to make intervene; 2) the applicant’s substantial legal interest in the
a prohibited transaction under ERISA. A hearing was held in case; 3) impairment of the applicant’s ability to protect that
May of 1998, during which the district court considered interest in the absence of intervention; and 4) inadequate
objections to the Settlement Agreement, and Plaintiffs’ representation of that interest by parties already before the
motion for an award of attorney’s fees and expenses. court. See Michigan State AFL-CIO v. Miller, 103 F.3d 1240,
1245 (6th Cir. 1997). In considering a district court’s denial
12 Jordan, et al. v. Michigan Nos. 98-1885/2113 Nos. 98-1885/2113 Jordan, et al. v. Michigan 5
Conference of Teamsters, et al. Conference of Teamsters, et al.
and because the hours and rates are comparable to the benefit In June of 1998, the district court issued a memorandum
conferred on the MCTWF and its participants by Plaintiffs’ order granting final approval to the Settlement Agreement and
action, Defendants cannot now assert that they subjectively awarding Plaintiffs attorney’s fees and litigation expenses.
intended to benefit the IBT by complying with the attorney’s The court agreed with Defendants that any payment ultimately
fees agreement in the settlement. remitted to the IBT would constitute a prohibited transaction
under ERISA, and therefore held that the award could not
Finally, the transaction is permissible under ERISA § 408. include money that had been advanced to Plaintiffs’ counsel
Section 408 serves as an exception to the prohibitions set by the IBT. Accordingly, the court instructed Plaintiffs’
forth under § 406. Section 408 reads in part: counsel to submit affidavits delineating the total sums
advanced by the IBT, which the court would then subtract
(b) The prohibitions provided in section 406 shall not from the attorney’s fees and costs award.
apply to any of the following transactions . . .
(2) Contracting or making reasonable arrangements In July of 1998, following receipt of these affidavits, the
with a party in interest for office space, or legal, district court entered its final judgment ordering the MCTWF
accounting or other services necessary for the to pay attorney’s fees of $248,944.71 and litigation expenses
establishment or operation of the plan, if no more of $5,649.68. This award did not include the sums advanced
than reasonable compensation is paid therefore . . . to Plaintiffs’ counsel by the IBT as fees ($160,978.04) and
expenses ($61,493.26). Shortly thereafter, the IBT filed a
29 U.S.C. § 1108(b)(2). However, Defendants rely on the motion to intervene under Federal Rule of Civil Procedure
express language of § 408(b)(2) and argue, alternatively, that 24(a)(2) in order to pursue an appeal to recover the money it
§ 408(b)(2) does not apply here because IBT did not provide had advanced to Plaintiffs’ counsel. In September of 1998,
any services to the Plan. The district court agreed with the district court denied the IBT’s motion on grounds that it
Defendants’ contentions. was untimely and unnecessary, and because Plaintiffs could
adequately represent the IBT’s interests on appeal. These
As part of the settlement, Defendants agreed to pay timely appeals followed.
Plaintiffs’ reasonable attorney’s fees and acknowledged that
the total fees and expenses sought by Plaintiffs were II.
reasonable. The fact that Defendants did not object as to the
hours or value of services rendered to the participants in the ERISA § 406 and Prohibited Transactions
fund does not alter the fact that Defendants agreed to pay
Plaintiffs their reasonable attorney’s fees which thereby fall The Employment Retirement Insurance Security Act
within the statutory exemption of ERISA § 408(b)(2), because (“ERISA”) § 406 prohibits plan fiduciaries from causing the
the IBT advanced the funds to provide legal services benefit plan to engage in certain “prohibited transactions”
necessary for the plan’s protection. See FirsTier Bank, N.A. because these transactions create a high potential for conflicts
v. Zeller, 16 F.3d 907, 913-14 (8th Cir. 1994) (stating that of interest. 29 U.S.C. § 1106(a) (1994).
§ 408 authorizes reimbursement of legal fees incurred by the
plan trustee in performance of his duties with the plan). Section 406(a) provides in part:
(a) Except as provided in 29 U.S.C. § 1108[ERISA § 408]:
6 Jordan, et al. v. Michigan Nos. 98-1885/2113 Nos. 98-1885/2113 Jordan, et al. v. Michigan 11
Conference of Teamsters, et al. Conference of Teamsters, et al.
(1) A fiduciary with respect to a plan shall not intent to benefit a party in interest. We disagree with this
cause the plan to engage in a transaction, if he interpretation because it merely skims the surface of the
knows or should know that such transaction important phrase “for the benefit of a party in interest” as
constitutes a direct or indirect– contained in § 406(a)(1)(D).
(A) sale or exchange, or leasing, of any In Reich v. Compton, the United States Court of Appeals
property between the plan and a party in for the Third Circuit considered the meaning of this language
interest; and found as follows:
(B) lending of money or other extension of As we read this language, it provides that a fiduciary
credit between the plan and a party in breach occurs when the following five elements are
interest; satisfied: 1) the person or entity is “[a] fiduciary with
respect to [the] plan”; 2) the fiduciary “cause[s]” the plan
(C) furnishing of goods, services, or to engage in the transaction at issue; 3) the transaction
facilities between the plan and a party in “use[s]” plan assets; 4) the transaction’s use of the assets
interest; is “for the benefit of” a party in interest; and 5) the
fiduciary “knows or should know” that elements three
(D) transfer to, or use by or for the benefit and four are satisfied.
of, a party in interest, of any assets of the
plan; or 57 F.3d 270, 278 (3d Cir. 1995). The court further concluded
that the fourth element requires a subjective intent to benefit
(E) acquisition, on behalf of the plan, or a party in interest. See id. at 279. If a showing of subjective
any employer security or employer real intent were not required, “section 406(a)(1)(D) would produce
property in violation of section 1107(a) of unreasonable consequences that we feel confident Congress
this title. could not have wanted.” Id. That is, § 406 would prohibit
fiduciaries from engaging in transactions that would benefit
29 U.S.C. § 1106(a) (1994). Section § 1002(14)(D) defines the plan. Id. “We thus find strong support for a subjective
a party in interest as including “an employee organization any intent requirement in the language of section 406(a)(1)(D),
of whose members who are covered by such plan.” 29 U.S.C. and finding no contrary evidence in the legislative history, we
§ 1002(14)(D) (1994). conclude that element four requires proof of a subjective
intent to benefit a party in interest.” Id. at 280.
Statutory construction is a question of law that this Court
reviews de novo. See EEOC v. Frank’s Nursery & Crafts, Compton is applicable to the instant case in that it compels
Inc., 177 F.3d 448, 454 (6th Cir. 1999). Plaintiffs principally the conclusion that the payment here is not prohibited because
argue that the award of attorney’s fees, which would then be it will not be made with the subjective intent to benefit the
turned over to the IBT, is not prohibited by § 406(a)(1)(D) IBT. The parties agreed in the Stipulation Agreement that
because 1) the money would first be transferred to Plaintiffs’ payment of reasonable attorney’s fees and expenses should be
counsel (who is not a party in interest) before being remitted made by the MCTWF utilizing the lodestar method. Because
to the IBT; 2) the payment is permissible because the Defendants did not object to the hours and rates of counsel,
MCTWF lacks any “subjective intent” to benefit the IBT; 3)
10 Jordan, et al. v. Michigan Nos. 98-1885/2113 Nos. 98-1885/2113 Jordan, et al. v. Michigan 7
Conference of Teamsters, et al. Conference of Teamsters, et al.
subchapter other than an action described in paragraph (2) by the transfer is permitted by ERISA § 502(g), which authorizes
a participant, beneficiary, or fiduciary, the court in its a district court to award attorney’s fees to a victorious party
discretion may allow a reasonable attorney’s fee and costs of in a lawsuit, even if that party qualifies as “party in interest”
action to either party.” 29 U.S.C. § 1132(g)(1) (1994). A under § 406(a); and 4) such a transfer is expressly authorized
district court has substantial discretion in making attorney fee by ERISA § 408 as an exemption from the “prohibited
awards in ERISA cases. See Central States Southeast and transfer” provision. We will address each of Plaintiffs’
Southwest Area Pension Fund v. Hitchings Trucking, 492 F. arguments in turn.
Supp. 906, 909 (E.D. Mich. 1980).
We first consider the Congressional intent of § 406.
A number of cases have directed plans to make payments Section 406(a)(1) is designed to prohibit transactions that
to attorneys for parties in interest. See, e.g., Anita Founds. v. would clearly injure the plan. See Lockheed Corp. v. Spink,
ILGWU Nat’l Retirement Fund, 902 F.2d 185, 187 (2d Cir. 517 U.S. 882, 888 (1996). Congress adopted § 406 to prevent
1990) (awarding attorney’s fees to employer); Operating employee benefit plans from engaging in transactions that
Eng’rs. Pension Trust v. Gilliam, 737 F.2d 1501, 1505 (9th would benefit parties in interest at the expense of plan
Cir. 1984) (same); Carpenters Southern California participants and their beneficiaries. See id. at 888. This
Administrative Corp. v. Russell, 726 F.2d 1410, 1416 (9th Court, as well as others, have noted that because § 406(a)
Cir. 1984) (same); Central States Southeast Area Pension characterizes per se violations, it should be interpreted
Fund v. Hitchings Trucking, 492 F. Supp. 906, 910 (E.D. narrowly. See United Steelworkers of Am., Local 2116 v.
Mich. 1980) (same). Here, the district court pointed to the Cyclops Corp., 860 F.2d 189, 203 (6th Cir. 1988); Amato v.
“either party” language of § 502(g)(1) and reasoned that Western Union Int’l, Inc., 773 F.2d 1402, 1417 (2d Cir. 1985)
because the party in interest (the IBT) was not a party to the (stating that a broad interpretation of the transactions
litigation at the time of the award, a payment by Plaintiffs to prohibited by § 406 bars plaintiff’s claim); Phillips v. Amoco
the IBT would constitute a prohibited transfer of assets. The Oil Co., 614 F. Supp. 694, 720 (N.D. Ala. 1985), aff’d, 799
district court does not, however, provide any authority to F.2d 1464 (11th Cir. 1986) (stating that Congress did not
support this conclusion. As we stated in Cyclops, and other intend a broad interpretation of § 406). Further, the Supreme
courts have agreed, the transactions prohibited by ERISA Court has maintained that ERISA must be strictly construed
§ 406 cannot be interpreted broadly. See Cyclops, 860 F.2d and that courts should not assume causes of action that are not
at 203; Amato, 773 F.2d at 1417; Phillips, 614 F. Supp at 720. primarily provided for in the statute. See Mertens v. Hewitt
Because ERISA must be strictly construed, we find the Assocs., 508 U.S. 248, 251-52 (1993); Massachusetts Mut.
district court’s interpretation of § 502(g)(1) unpersuasive. Life Ins. Co. v. Russell, 473 U.S. 134, 146 (1985); Nachman
Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359, 361
Moreover, the transaction at issue is permissible because (1980); see also Brock v. Citizens Bank of Clovis, 841 F.2d
MCTWF lacks subjective intent to benefit the IBT. In the 344, 346-47 (10th Cir. 1988) (finding that a payment made by
instant case, the district court noted that nothing in ERISA’s a plan to a third party was not a violation of § 406, even when
prohibited transaction provisions “literally requires knowing the third party used proceeds to pay off a loan to a party in
or subjective intent to benefit” the party in interest. (J.A. at interest because “unless the act complained of falls within the
53.) Nonetheless, the district court found that Plaintiffs’ specific list of dealings proscribed by Sec. 1106 (or within the
counsel’s proposal to remit money to the IBT to reimburse the self dealing provision of Sec. 1104(a)(1)), the transaction
IBT for money it expended is enough to create a subjective does not constitute a per se violation of ERISA”).
8 Jordan, et al. v. Michigan Nos. 98-1885/2113 Nos. 98-1885/2113 Jordan, et al. v. Michigan 9
Conference of Teamsters, et al. Conference of Teamsters, et al.
Congress adopted § 406(a)(1) of ERISA to prevent plans constitute repayment for money already expended by IBT in
from engaging in certain types of transactions that had been support of Plaintiffs’ suit against Defendants. Moreover, the
used in the past to benefit other parties at the expense of the IBT would receive the attorney’s fees advanced without the
plans’ participants and beneficiaries. Prior to the payment of interest. IBT therefore does not stand to receive
implementation of ERISA, benefit plans normally engaged in a profit or gain from the alleged “prohibited transaction.”
transactions with related parties so long as the transactions Indeed, the transaction at issue does not contain the “abuse”
were at “arm’s-length.” See Comm’r of IRS v. Keystone Congress sought to protect in promulgating § 406(a), as the
Consol. Indus., 508 U.S. 152, 160 (1993). However, this rule transaction will not injure the plan. Comm’r of IRS, 508 U.S.
was difficult to monitor and therefore “provided an open door at 160; S. Rep. No. 93-383, 93rd Cong., 22 Sess. (1974).
for abuses” by plan trustees. Id. Congress then enacted
§ 406(a) with the goal of creating a bar to certain types of Plaintiffs, as plan members, presumably would not have
transactions that were regarded as likely to injure a plan. Id.; been able to bring this suit without the financial support of the
See S. Rep. No. 93-383, 93rd Cong., 2d Sess. (1974), IBT, since the IBT advanced the legal costs. Plaintiffs
reprinted in 1974 U.S.C.C.A.N. 4890, 4981. brought suit against Defendants because they believed that the
fund managers were engaged in corruption and
Plaintiffs first contend that § 406 does not apply because mismanagement. Indeed, if we followed the reasoning of the
the money will first be transferred to Plaintiffs’ counsel. In district court, groups such as the IBT would be discouraged
recognizing that the IBT is a party in interest here, the proper from assisting plan members to right the wrongs committed
focus of the analysis is whether there is intent to benefit the by fiduciaries. We believe that such a result would go against
IBT. We find that there is no such intent. The legislative the very core of what § 406 seeks to prevent. See Comm’r v.
history indicates that § 406 was intended to protect plan Keystone Consol. Indus., Inc., 508 U.S. 152, 160 (1993)
members by preventing fiduciaries from engaging in (noting that in enacting § 406(a) barring transactions between
transactions that could hurt the plan. In Cyclops, this Court a “party in interest” and an ERISA plan, “Congress’ goal was
recognized that a narrow construction of § 406 provides to bar categorically a transaction that was likely to injure the
flexibility. See Cyclops, 860 F.2d at 203. Notwithstanding pension plan”).
the narrow interpretation of prohibited transactions under
§ 406, the pertinent language in § 406 is actually quite broad. We now consider Plaintiffs’ contention that the transaction
Specifically, the language of § 406 is broad when it refers in at issue is permitted by ERISA § 502(g) and therefore, beyond
part, to “transfer to, or use by or for the benefit of, a party in the reach of § 406(a)(1)(D). While § 406(a)(1)(D) prohibits
interest, of any assets of the plan.” 29 U.S.C. § 1106(a) a fiduciary from causing a plan to engage in certain conduct
(1994). Even the narrowest construction demonstrates that that is deemed to involve a prohibited transaction, it does not
the drafters of § 406 did not intend to view the transaction at limit a district court’s authority to award fees or to direct plan
issue as a prohibited transaction. The remittance of attorney’s trustees to make payments pursuant to a court order. Such an
fees to the IBT would not benefit the IBT in the manner interpretation of § 406 is both narrow and strained; Congress
intended to be proscribed by the statute. A benefit is defined did not intend the section to be read in that manner. See
as an advantage, privilege, profit or gain. See Black’s Law Phillips, 614 F. Supp. at 720. ERISA § 502(g)(1) authorizes
Dictionary 150 (7th ed. 1999). IBT would not receive a a district court to award a reasonable attorney’s fee to a party
benefit in the context of the statutory framework involved in without regard to the party’s interest in the plan. Section
the instant case inasmuch as the transaction would merely 502(g)(1) reads in pertinent part: “[i]n any action under this