Sam Giardono v. George M. Jones

867 F.2d 409, 104 A.L.R. Fed. 597, 10 Employee Benefits Cas. (BNA) 1913, 1989 U.S. App. LEXIS 1499, 1989 WL 10486
CourtCourt of Appeals for the Seventh Circuit
DecidedFebruary 1, 1989
Docket87-3112
StatusPublished
Cited by92 cases

This text of 867 F.2d 409 (Sam Giardono v. George M. Jones) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sam Giardono v. George M. Jones, 867 F.2d 409, 104 A.L.R. Fed. 597, 10 Employee Benefits Cas. (BNA) 1913, 1989 U.S. App. LEXIS 1499, 1989 WL 10486 (7th Cir. 1989).

Opinions

MYRON L. GORDON, Senior District Judge.

This appeal requires the court to explore certain boundaries of the subject matter jurisdiction granted to the federal district courts by the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001, et seq. The specific issues to be resolved are: (1) whether the district court erred in dismissing the appellant’s counterclaims; and (2) whether the district court abused its discretion in denying attorney’s fees to the appellant. We hold that the district court lacked subject matter jurisdiction over the appellant’s counterclaim under ERISA, and it properly dismissed the pendent counterclaims; in addition, it did not abuse its discretion in denying attorney’s fees to the appellant.

BACKGROUND

Prior to 1973, the appellant, George Jones, was a member of the Operative Plasterers and Cement Finishers International Union Local 382 (the “union”) and a participant and beneficiary of the Construction Industry Welfare Fund of Rockford and the Construction Industry Retirement Fund (the “fund”). In 1973, Mr. Jones ceased to be an employee when he went into the cement contractor business as a sole proprietor and became an employer. However, he wanted to continue the health [411]*411insurance benefits that he had received as a union member, so at the behest of the union he entered into a written agreement with the union which provided that, as an employer, he recognized the union and adopted the area master contract. For ten years after signing the agreement, Mr. Jones paid for and received health insurance coverage, but he did not honor the union contract and employed only nonunion labor.

During that period the union did nothing to enforce the agreement. After ten years, the trustees of the fund brought the underlying action to recover employee benefit contributions which would have been owed had the agreement that Mr. Jones signed been enforceable. The trustees based jurisdiction for their complaint on § 301 of the Labor Management Relations Act, 29 U.S. C. § 185, and on § 502 of ERISA, 29 U.S.C. § 1132.

George Jones responded to the suit with the counterclaims that are now at issue in this appeal. The counterclaims asserted that the plaintiffs violated their fiduciary duty owed to Mr. Jones under both ERISA and the state common law and, also that the plaintiffs fraudulently induced Mr. Jones to subscribe to the collective bargaining agreement with the union. The invoked grounds for jurisdiction over the counterclaims were ERISA and the doctrine of pendent jurisdiction.

The district court dismissed Mr. Jones’ ERISA counterclaim on the ground that, as an employer, he lacked standing to bring an ERISA action. The pendent state counterclaims were dismissed for failure to state a cause of action against the trustees. The district court held that the fraud counterclaim failed for want of specificity against the trustees. The district court noted that although the claim “conceivably” stated a cause of action against the union, the union was not a party to the case.

After a bench trial on the merits of the complaint, judgment was entered for defendant Jones. The district court held that the evidence did not establish a contract, and therefore, the defendant Jones was not bound by the obligations of the area master collective bargaining agreement. The district court dismissed the counterclaims and then denied Mr. Jones’ petition for attorney’s fees.

ERISA JURISDICTION

The appellant urges that he properly brought the ERISA counterclaim either as a plan participant with an express right of action, or as an employer with an implied right of action. The jurisdictional provision of ERISA provides for actions by enumerated parties:

... the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, or fiduciary.

29 U.S.C. § 1132(e)(1) [emphasis added],

First, the appellant argues that he has standing to bring an ERISA counterclaim as a plan participant, notwithstanding the fact that he is also an employer. A participant includes “any employee or former employee of an employer, or any member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan ...” 29 U.S.C. § 1002(7). There is no question that Mr. Jones had previously qualified as a plan participant while he was an employee and a member of the union. The question is whether he continued to be a plan participant once he became an employer. In other words, does the statutory definition of a plan participant encompass a former employee who has become an employer and, nevertheless, is permitted to purchase plan coverage in his status as employer?

An employer cannot ordinarily be an employee or participant under ERISA. It is a fundamental requirement of ERISA that “... the assets of a plan shall never inure to the benefit of any employer ...”. 29 U.S.C. § 1103(c)(1). In Peckham v. Board of Trustees, Etc., 653 F.2d 424, 427 (10th Cir.1981), the court held that this statutory mandate precluded sole proprietors from having the dual status of employ[412]*412er-employee for purposes of ERISA. Accord Chase v. Trustees of W. Con. of T. Pension T.F., 753 F.2d 744, 748 (9th Cir.1985).

The appellant, however, contends that it has been held that an employer may have “dual status” standing as a fiduciary to sue under ERISA. Ed Miniat, Inc. v. Globe Life Ins. Group, 805 F.2d 732 (7th Cir.1986); U.S. Steel Corp. v. Pennsylvania Human Relations Commission, 669 F.2d 124 (3rd Cir.1982); Great Lakes Steel v. Deggendorf 716 F.2d 1101 (6th Cir.1983). Therefore, the appellant urges that the courts have recognized a general principle of multiple roles for employers which permits an employer to have standing whenever he also has the status of a plan participant.

However, the fact that an employer may have standing as a fiduciary does absolutely nothing the advance the argument that an employer may similarly have standing as a participant. When an employer files suit as a fiduciary, he acts for the benefit of plan participants and beneficiaries; he does not act in his own interest and thus does not risk running afoul of the requirement that the assest of a plan may not inure to the benefit of an employer. 29 U.S.C. § 1103(c)(1); see also, H.C.A. Health Services v. Brown, No. 87-C-4029, slip op at 3 (N.D.Ill. June 24, 1988) [1988 WL 71219] (“an independent contractor’s decision to independently subscribe to a policy shared by the company with which it has a contractual relationship does not transform the contractor into an employee for purposes of ERISA”); R.M. Bowler Contract Hauling v. Central States, Etc., 547 F.Supp.

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867 F.2d 409, 104 A.L.R. Fed. 597, 10 Employee Benefits Cas. (BNA) 1913, 1989 U.S. App. LEXIS 1499, 1989 WL 10486, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sam-giardono-v-george-m-jones-ca7-1989.