Lead Opinion
The Department of Labor sued the Central States, Southeast and Southwest Areas Health and Welfare Fund, an employee benefit fund sponsored by the Teamsters Union, along with current and former trustees of the fund, firms that had rendered services to the fund, and others, alleging violations of fiduciary obligations imposed by the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq., and seeking both damages and injunctive relief. (The case has a lurid background, unnecessary to examine in this opinion, in the efforts of organized crime, acting through Allen Dorfman, to plunder the pension fund. Dorfman’s estate, and the company he controlled, Amalgamated, which processed the claims of the Fund’s beneficiaries, are among the other defendants in the case.) The Department negotiated a settlement with the Fund and its current trustees, and embodied it in a consent decree that the parties to the decree then submitted to Judge Will, presiding over the litigation, for his approval. Other defendants objected to the terms of the decree, the judge refused to approve it, and the Department and the settling defendants appeal from his refusal.
We have first to examine our appellate jurisdiction. The judge’s action in refusing to approve the decree was not a final decision, appealable under 28 U.S.C. § 1291. The suit in which the order was entered remains pending before him, and will soon be tried. It is as if he had denied a motion to dismiss the complaint; and such a denial is the classic example of a nonfinal order. Although 28 U.S.C. § 1292(a)(1) authorizes immediate appeal of an interlocutory order denying (as well as one granting or modifying, etc.) an injunction, the consent decree that the Department of Labor and the settling defendants asked the judge to sign contains a permanent rather than a temporary injunction, intended to wind up the litigation between the parties to the decree rather than to provide interim relief. It might seem that this could make no difference. The statute speaks not of interlocutory injunctions but of interlocutory orders denying (or granting, etc.) injunctions. Judge Will’s order refused an injunction, and was interlocutory — not only because the lawsuit is continuing against other defendants but also because the order did not finally deny the plaintiff’s right to an injunction but merely deferred consideration to such later time as the parties submitted a revised decree. (For the sake of completeness we point out that an order granting a permanent injunc- • tion may be interlocutory too. The case may be continuing against other defendants; or the plaintiff may be seeking damages as well as an injunction, and the damages have yet to be assessed.) Thus it comes as no surprise that many cases, beginning with Smith v. Vulcan Iron Works,
But this principle is qualified in an important line of cases led by Switzerland Cheese Ass’n, Inc. v. E. Horne’s Market, Inc.,
The problem is to integrate this insight about the practical differences between interlocutory orders denying preliminary injunctions and interlocutory orders denying permanent injunctions with the language of section 1292(a)(1), which does not distinguish between the two types of order. The solution implied by Switzerland Cheese Ass’n is to distinguish “postponing” from “denying” a request for injunctive relief: if the request is merely postponed, as in Switzerland Cheese Ass’n, appeal is not automatically allowed. This distinction implies, and later cases confirm, that a definitive disposition of a request for a permanent injunction is appealable under section 1292(a)(1), consistently with the Smith v. Vulcan Iron Works line of cases. See, e.g., Milonas v. Williams,
All this is by way of necessary background to the Supreme Court’s decision in Carson v. American Brands, Inc.,
The source of confusion is that Carson seems to be about two different things— the appealability of orders disapproving consent decrees that contain permanent injunctions, and the appealability of orders of any sort that have the same consequences as orders denying preliminary injunctions.
Carson, we conclude, requires that irreparable harm be shown whenever a party wants to appeal immediately either an interlocutory order deferring the entry of a permanent injunction, whether free-standing or contained in a proposed consent decree, or an interlocutory order that while not explicitly the grant or denial of a preliminary injunction may have consequences (summed up in the words “irreparable harm”) similar to those of such an order.
The Second Circuit’s Dairylea opinion offers a refinement of Carson. Concerned lest the courts of appeals be flooded with appeals challenging trivial reservations made by district judges to proposed consent decrees, reservations that could easily have been met by the parties’ modifying the decree and then resubmitting it, the court in Dairylea held that the appellant must show that the judge's reservations cannot be met easily in that way. See
But we need not decide in this case whether to follow the lead of Dairylea and limit the rule of Carson to cases where the parties to the consent decree shoulder the burden of actually proving that they are at an impasse with the district judge. Although Judge Will did invite the settling parties to resubmit the decree with changes responding to his concerns, prompt approval of a resubmitted decree was not in the cards. This is true, as we shall see, even though the judge’s main concern was with the damage provisions of the decree rather than the injunctive provisions. The decree requires the Fund’s current trustees to pay $1.8 million into the Fund, an amount calculated as follows. The parties estimated that the judgment that would be brought in against these trustees at the conclusion of the trial, when
The judge described his objections to the injunctive provisions of the decree as going to “less central” aspects of it — though the injunctive provisions are extensive. They not only require compliance with ERISA by the Fund and its current and future trustees, under penalty of contempt for noncompliance, but alter the policies and even structure of the Fund, for example by requiring it to create an internal audit staff. The judge registered no objection to these provisions; his objections center on the provision for an “Independent Special Counsel.” He is to be William Saxbe, a former attorney general of the United States, and is to play a broad “watchdog” role over the management of the Fund, subject to supervision by the district court, which is to retain jurisdiction to make sure that the terms of the decree are carried out. Some of the objections the judge himself described as “technical,” an apt description of minor problems that the parties could easily have been left to work out between themselves after the decree was in effect. His larger objections were four:
1. Although the decree denies the Independent Special Counsel “any right of participation in, or attendance at, collective bargaining meetings at which such contribution rates [i.e., the rates at which employers or employees contribute money to the Fund] are negotiated or at management or union prenegotiation meetings at which their respective bargaining positions as to contribution rates are determined,” it does not in so many words exclude the Independent Special Counsel from all collective bargaining and strategy meetings, for example collective bargaining meetings where benefit levels are discussed but not contribution rates. In fact the decree allows the Independent Special Counsel to “attend any other meetings of any type whatsoever at which [Fund-related] matters are discussed or considered.”
2. There is an exception to the last-quoted authorization for meetings, or parts of meetings, “conducted for the sole purpose of negotiation of contribution rates or the determination of management and union negotiating strategy as regards such contribution rates.” But it does not explicitly bar the Independent Special Counsel from attending meetings of the executive boards of local unions.
3. The judge was concerned that the presence of the Independent Special Counsel at meetings attended by nonsettling defendants and their lawyers could lead to those defendants’ losing their attorney-client privilege.
4. The decree authorizes the district judge to modify it in accordance with “changed legal or factual circumstances, as and to the extent appropriate under United States v. Swift & Co.,
All of these objections could be met by wording changes that the Department and the settling defendants should have little difficulty (but for the dynamics of negotiation, about which more later) in agreeing on in short order. If they were the judge’s only objections to the decree we would be baffled as to why the parties had appealed to us rather than resubmitted the
Having satisfied ourselves at last that we have jurisdiction of the appeal, we must consider what standard a district judge should use in deciding whether to sign a consent decree and what standard we should use in reviewing his decision. When parties want to settle a case, they need only file a stipulation of dismissal under Fed.R.Civ.P. 41(a)(1), and the terms of the settlement will not be reviewed at all. But as shown by Rule 41(a)(l)’s cautionary reference to Rule 23(e), which requires judicial approval of dismissals and compromises of class actions, the reason for judicial laissez-faire regarding settlements is that a simple dismissal will not affect (not demonstrably, anyway) third parties or involve the judge in carrying out the underlying settlement. It is different if the judge is asked to sign a consent decree, which virtually by definition will contain equitable provisions. (If the settlement were purely monetary, the defendant would pay and the suit would be dismissed by stipulation.)
A federal judge has the full powers of an equity judge. So if third parties complain to him that the decree will be inequitable because it will harm them unjustly, he cannot just brush their complaints aside. See Bass v. Federal Savings & Loan Ins. Corp.,
Although a judge thus must, before signing an equity decree that either affects third parties or imposes continuing duties
Turning to the standard of appellate review, we point out that the district judge’s decision to approve a settlement is reviewed under a highly deferential version of the “abuse of discretion” standard, see, e.g., Air Line Stewards & Stewardesses Ass’n, Local 550 v. Trans World Airlines, Inc.,
Putting such an unusual situation to one side, we do not think there should be two standards of appellate review, depending on whether the district judge approves or disapproves the decree. The policy of encouraging settlements can easily be factored into an abuse of discretion analysis by noting that the district judge is to exercise his discretion in accordance with what Judge Friendly (and this court) has called a “principle of preference.” See Friendly, Indiscretion About Discretion, 31 Emory L.J. 747, 768 (1982); Coyne-Delany Co. v. Capital Development Bd.,
But as so often in dealing with the standard of review, the verbal formulation of the standard may not make much practical difference. Reviewing courts want to correct errors affecting substantial rights but realize that their ability to determine whether an error has been committed is quite limited in some circumstances. For example, if the trial judge’s determination is based on factors that are not accessible to the reviewing court, such as the credibility of witnesses, the court may not be able to determine whether the trial judge was right but only whether he was reasonable; and likewise if a judge accepts, or rejects, a proposed consent decree only after weighing a large number of imponderables. But it is not important in this case to make refined distinctions among rival theories of
At common law a tortfeasor could sometimes obtain from a joint tortfeasor complete reimbursement of any compensatory damages he was forced to pay his victim (“indemnity”), but never partial reimbursement (“contribution”). Hillier v. Southern Towing Co.,
Although the common law’s rejection of contribution among joint tortfeasors has itself been rejected by most states and most commentators, the Supreme Court remains reluctant to use its own common law powers to allow contribution under federal statutes that do not provide for it expressly. See Texas Industries, Inc. v. Radcliff Materials, Inc.,
Now a settlement (“accord and satisfaction”) is for most purposes a contract. The money settlement in this case concludes the dispute between the Department of Labor and the current trustees but not the potential dispute between those trustees and the nonsettling defendants, and at least as a matter of contract law it cannot bind non-parties and thus it places no ceiling on the amount that the current trustees may someday be required to pay the other defendants by way of contribution. An example will help to show why this is so. Suppose that in the trial of the other defendants the Department obtains a judgment for $12 million, those defendants then seek contribution from the current trustees, and the court holds that the current trustees as a group should bear one third of the liability, or $4 million. As the trustees will already have paid $1.8 million in the settlement, the Department can collect only $10.2 million ($12 million minus $1.8 million) from the other defendants. Those defendants can, in turn (assuming, as we are, that ERISA creates a right of contribution), obtain $2.2 million from the current trustees, as this is the difference between the trustees’ hypothetical fair share of the total liability, $4 million, and what they have already paid the plaintiff, $1.8 million. The nonsettling defendants would therefore end up $8 million out of pocket ($10.2 million minus $2.2 million).
They would be no better off if the current trustees had settled with the Department for more — say, for $6 million instead of $1.8 million. In that case, since we are assuming that the current trustees’ adjudicated share of the total liability of $12 million is only $4 million, these trustees would be entitled (subject to a qualification to be noted shortly) to contribution from the nonsettling defendants of $2 million ($6 million minus $4 million). And $2 million, when added to the $6 million that those defendants would have to pay to the Department directly ($12 million, the judgment, minus $6 million, the amount the Department had already collected from the current trustees), makes $8 million — the same cost to the nonsettling defendants as under the smaller settlement.
Although, as these examples show, the settlement agreement cannot as a matter of contract law affect the contribution rights of the nonsettling defendants (non-parties to the settlement), we must also consider whether tort principles that might be applicable to the parties might limit the right of a nonsettling defendant to seek contribution from a settling one. They might indeed if a recent Illinois statute, Contribution Among Joint Tortfeasors, 111. Rev.Stat.1981, ch. 70, ¶ 302(c), were applicable, for it immunizes a settling defendant from any claim for contribution, whether or not the settlement agreement tries to confer such an immunity. But we do not think state law applicable here. Where contribution is sought by one who has had to pay damages for violating a federal statute, the scope and limitations of the right of contribution are invariably treated as questions of federal rather than state law. See, e.g., Laventhol, Krekstein, Horwath & Horwath v. Horwitch,
But what shall that rule be? ERISA does not say; and we shall therefore have to canvass the various possible rules for which there is some support. The traditional rule is that, just as in our examples based on contract law, a settlement does not limit the nonsettling defendants’ right to contribution. See, e.g., Byrnes v. Phoenix Assurance Co. of New York,
Several cases, well discussed in Adamski, Contribution and Settlement in Multiparty Actions Under Rule 1 Ob-5, 66 Ia.L.Rev. 533, 544-47 (1981), support the application of the traditional rule to federal securities cases. See, e.g., Laventhol, Krekstein, Horwath & Horwath v. Horwitch, supra,
The objection to the traditional rule is that it discourages defendants from set
The comparative-fault rule provides a neat solution to these problems. It encourages settlement by immunizing the settling defendant from liability for contribution but does not require a hearing on the fairness of the settlement to other tortfeasors. And we have said that the comparative-fault rule has the same consequences for this case as the traditional one. But in any event, the objection to the traditional rule, that it discourages settlement, would be important only in a case where the settlement agreement tried to insulate the settling defendant from contribution claims by the other defendants. The presence of such a clause would be some evidence that settlement would indeed be infeasible, or at least less advantageous to the plaintiff, if the settling defendant was not allowed to cap his liability. But the agreement in the present case makes no effort to shield the settling defendants. They are willing to settle with the Department of Labor on mutually advantageous terms while taking their chances on being sued later for contribution or indemnity. Of course this may just be because they think the traditional rule, whereby a settlement cannot limit nonsettling defendants’ rights of contribution, will be applied. But whatever the reason, they have agreed to the settlement without taking any steps to invoke the settlement-bar rule, and that makes this case a poor vehicle for rejecting the traditional rule in favor of the settlement-bar rule on the ground that the traditional rule discourages settlement — especially when an alternative rule, that of comparative fault, meets that objection without requiring the kind of fairness hearing that Judge Will wanted. (Probably the reason the parties to the settlement agreement in this case were able to settle their dispute notwithstanding the settling defendants’ continuing exposure to liability for contribution is that the settlement went to the limits of those defendants’ insurance coverage. Water cannot be squeezed out of a stone; and a private individual without insurance coverage is, with rare exceptions, a stone from the standpoint of being compelled to pay substantial damages.)
To summarize, we decline to adopt the settlement-bar rule for ERISA cases. And therefore the amount of the settlement in this case cannot (more candidly, probably will not) have any effect on the other defendants, and the district judge should not have been concerned that by settling for as little as it did the Department of Labor was hurting them. Of course the Department may have been hurting itself, or the beneficiaries of the
Although third-party effects could not justify the district judge’s refusing to approve the decree’s financial terms, we must consider the possible third-party effects of those equitable features of the decree to which he also objected — features with which he had an independent concern, moreover, because he will have to administer the equity portions of the decree. But we do not think he would have refused to sign the decree merely because of these objections; and whether he would have or not, it is apparent from the briefs and argument in this court that the settling parties in fact interpret the decree in a way that meets his objections fully. The decree could be much better drafted than it is but this is a peculiarly inappropriate setting for counsels of perfection. Consent decrees are the products of negotiation and compromise, and often compromise is possible only because the parties agree to disagree, using vague words to defer decision to the future. See, e.g., Alliance to End Repression v. City of Chicago,
The decree that Judge Will rejected was the third the parties had submitted to him. Though far from perfect, the third revision achieved substantial compliance with his reservations and no more should have been required. Although seemingly unable to find the words in which to give written expression to their agreement on the specific matters to which the judge objected, the parties agree that the decree is not intended to authorize the Special Independent Counsel to attend collective bargaining sessions or other strategy sessions, or to attend meetings of the executive committees of local unions; and this meets two of the judge’s objections. They also agree that the decree may bé modified not only if factual or legal circumstances change — and not only if there is “a clear showing of grievious wrong evoked by new and unforeseen conditions,” United States v. Swift & Co., supra,
The decree, as interpreted by the parties, is reasonable; it should have been approved.
REVERSED AND REMANDED.
Concurrence Opinion
concurring in result.
I concur in the majority’s analysis that this court has jurisdiction of the appeal under 28 U.S.C. § 1292(a)(1). I further concur in the majority’s conclusion that the settlement agreement between the Department of Labor and the current trustees of the Central States, Southeast and Southwest Areas Health and Welfare Fund (“Fund”) has no effect upon the non-settling defendants, and thus should be approved by the district court. Unlike the majority, I reach this conclusion on the basis that the intent of Congress in enacting the Employee Retirement Income Security Act (“ERISA”) was to allow and encourage Federal courts to exercise their equitable powers and permit contribution among co-trustees of an ERISA plan who have been found in breach of their fiduciary duties. In accord with this reasoning, I refuse to join in the majority’s erroneous dicta concerning the application of the comparative-fault rule to damage awards under ERISA.
The sole issue presented in this appeal is whether the district court judge erred in failing to approve a settlement agreement because insufficient evidence was introduced concerning the reasonableness of the amount of that settlement. I am firmly convinced that this court’s well-reasoned and scholarly analysis in Free v. Briody,
In analyzing this issue, we initially referred to the Supreme Court’s directive in Northwest Airlines, Inc. v. Transport Workers Union of America,
“(a) Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this sub-chapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.”
(Emphasis added.) Based upon this language we concluded that:
“ERISA grants the courts the power to shape an award so as to make the injured plan whole while at the same time apportioning the damages equitably between the wrongdoers. An award of indemnification within the limited circumstances of this case appears to us to be properly within the court’s equitable powers.”
Free,
“If one trustee was solely or principally active in the commission of the breach, and the other trustee was passive or only nominally a participant, the court may, in the exercise of its discretion, grant the latter a right of indemnity against the former and throw the entire burden on him who was most blameworthy.”
G. Bogert, Trust & Trustees § 862, at 24 (2d ed. 1962); Restatement (Second) of Trusts § 258, at 651 (1959). Accordingly, based upon the facts presented in Free, we held that the intent of Congress in enacting ERISA was to permit a trustee, found in breach of his fiduciary duty, to seek indemnification from a co-trustee.
In the present case, the district court judge and the non-settling defendants were concerned that the settlement agreement between the Department of Labor and the current trustees of the Fund did not accurately reflect the settling defendants’ degree of liability. In light of this court’s analysis in Free, I believe that this concern was completely unfounded. The relevant law of trusts provides that, “if one co-trustee has paid the entire judgment, or more than his equitable share, the court may accord to him a right of contribution from the co-trustees, so as to adjust the ultimate liabilities as the court deems just.” G. Bogert, Trust & Trustees § 862, at 24 (2d ed. 1962). See also Freund v. Marshall & Ilsley Bank,
Rather than adopt this clear and concise line of legal reasoning, the majority embarks upon an erroneous and completely unnecessary discussion of the comparative-fault rule. The majority asserts, in dicta, that the comparative-fault rule “provides a neat solution” to the problems of settling defendants and contribution in an ERISA action. According to the majority’s example, “if the judgment is for $12 million and the settling defendants are found to be one-third responsible, the non-settling defendants will have to pay the plaintiff only $8 million, regardless of the amount of the settlement, and thus will be unaffected by its terms.” According to this example, if the plaintiff settled for less than $4 million with those defendants eventually found to be liable for one-third of the damages, the plaintiff would be unable to recover his full $12 million in damages.
This result directly conflicts with the accepted law of trusts that “[i]f several trustees unite in a breach of trust, they are jointly and severally liable, and the entire claim ... may be satisfied from the property of one trustee.” G. Bogert, Trust & Trustees § 862, at 22-23 (1962) (emphasis added). See also Restatement (Second) of Trusts § 258 comment a, at 651 (1959). The purpose of imposing joint and several liability upon co-trustees is to ensure that the plaintiff “will be able to recover the full amount of damages from some, if not all, participants.” Texas Industries, Inc. v. Radcliffe Materials, Inc.,
“(a) In addition to any liability which he may have under any other provision of this part, a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan in the following circumstances:
(1) if he participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other fiduciary, knowing such act or omission is a breach;
(2) if, by his failure to comply with section 1104(a)(1) of this title in the administration of his specific responsibilities which give rise to his status as a fiduciary, he has enabled such other fiduciary to commit a breach; or
(3) if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach.”
The legislative history of section 1105 clearly reveals that Congress intended to adopt the trust law principle of joint and several liability for ERISA, and thereby allow ERISA plaintiffs to collect their full amount of damages from any or all co-trustees found to be in breach of their fiduciary duty. According to the Senate Report, “[a]ny fiduciary who breaches his trust is personally liable for losses resulting from such breach, and co-fiduciaries are jointly and severally liable____” S.Rep. No. 93-127, 93d Cong., 1st Sess., reprinted in 1974 U.S.Code Cong. & Ad.News 4838, 4882 (emphasis added). See also S.Rep. No. 93-383, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Ad.News 4890, 4989. Similarly, the House Conference Report states that “a fiduciary who breaches the fiduciary requirements of the bill is to be personally liable for any losses to the plan resulting from this breach.” H.R. Conf.R. No. 83-1280, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Ad. News 5038, 5100. See also Donovan v. Mazzola,
Applying the settled trust law principle of joint and several liability to the majority’s example, the plaintiff would be entitled to the full amount of damages from the non-settling defendants, less the amount of the settlement entered into with the settling defendants. Once the plaintiff is made completely whole, it would be for the defendants to determine among themselves, the extent of their individual liability. The majority’s comparative-fault rule does not ensure ERISA plaintiffs, who settle with one or more co-trustees, that they will receive the full amount of damages awarded by the court. Such a result directly conflicts with congressional intent that ERISA plaintiffs be protected and paid in full. I believe that the majority’s erroneous, unnecessary reference to the comparative-fault rule, in dicta, does nothing more than create chaos and confusion for members of the Federal bench and bar. Accordingly, for the reasons expressed in this concurrence, I agree only with the majority’s analysis that we have jurisdiction of this case under 28 U.S.C. § 1292(a)(1) and that the district court erred in not approving the parties’ settlement agreement.
