V. The Duty to Take Reasonable Actions to Remedy Another Fiduciary's Breach
Under ERISA, a fiduciary to a plan is liable for the breach of another fiduciary if the first has failed in his own fiduciary duties, enabling the "other fiduciary to commit a breach," 29 U.S.C. § 1105(a)(2), or "has knowledge of a breach by such other fiduciary, unless [the first one] makes reasonable efforts under the circumstances to remedy the breach," id. § 1105(a)(3). The Baldan Plan itself recognizes that fiduciaries may not immunize themselves from these potential liabilities. See Gutierrez Decl., Ex. 1, at § 10.1.G (stating that intention of Plan was to make each fiduciary not "responsible for the acts or omissions of any other Fiduciary or person except as provided by Section 405(a) of ERISA"). Thus, if Winterton is found to have failed to make reasonable collection efforts such that Baldan was enabled to further breach his duties to the plaintiffs, or if Winterton, with knowledge of Baldan's breach, is found to have failed to make reasonable efforts to remedy that breach, then section 1105(a) would provide another means by which to find Winterton liable to the plaintiffs.
VI. The Duty Not to Engage in Prohibited Transactions Under Section 1106
Under 29 U.S.C. § 1106(a)(1), a fiduciary "shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect ... (D) transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan." Plaintiffs argue that by failing to collect contributions owed by Baldan, Winterton in effect made an extension of credit on behalf of the Plan. In support of this position, they cite Prohibited Transaction Exemption 76-1, 41 Fed.Reg. 12740 (1976), which states that "if the plan is not making systematic, reasonable and diligent efforts to collect delinquent contributions, or the failure to collect is the result of an arrangement, agreement or understanding, express or implied, between the plan and the delinquent employer, such failure to collect may be deemed to be a prohibited transaction." Id. at 12741. Exemptions were given for extensions of time for contributions, agreements to accept less than full contributions, and agreements to write off such contributions as uncollectible if, generally speaking, the plan has made "reasonable, diligent, and systematic efforts as are appropriate under the circumstances to collect such contribution," and the agreement between the plan and employer is reasonable and reduced to writing. See id. at 12742.
The defendant argues that this gloss on prohibited transactions applies only to multiemployers or multiple employers, which for purposes of the exemption are both defined as "a plan -- (i) to which more than one employer is required to contribute, [and] (ii) which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer," 29 U.S.C. § 1002(37)(A). See 41 Fed.Reg. at 12742. While, on a narrow view, the defendant is correct that the exemption applies specifically to multiemployer and multiple employer plans as defined in 29 U.S.C. § 1002, the conclusion that the defendant reaches is contrary to logic. That certain exemptions should be established which apply only to multiemployer plans does not then limit the obligation not to engage in prohibited transactions only to fiduciaries of those sorts of plans, and nothing in the language of 29 U.S.C. § 1106(a) suggests such a limitation.
On the other hand, the transaction exemption is not an authoritative reading of the duties imposed by section 1106, and this Court finds that if the provision on prohibited transactions were to apply to Winterton, it would only be because of a breach of the duty to make reasonable collection efforts. That is, the Court doubts whether section 1106 was intended to apply to situations such as that in the instant case where there was no "transaction" to speak of, but only a potential breach of fiduciary duty. It may be that breach of the fiduciary duty to make reasonable collection efforts constitutes a transaction which allows use of plan assets by an employer, but this is a pained interpretation of the statute, and one for which neither the plaintiffs nor the Court have been able to locate relevant authority. In addition, given that the Court has already found that Winterton had a duty to make "reasonable" collection efforts, the Court does not perceive any need to strain to find a duty to make "systematic" and "diligent" collection efforts as well. If a reasonably prudent trustee would have made systematic and diligent efforts, then Winterton will be held to that standard.
For the foregoing reasons, the Court HOLDS that a plan administrator and fiduciary: (1) has a duty to make reasonable collection efforts; (2) has a duty to give notice to participants of an employer's failure to pay and his own decision not to incur expenses to seek contribution; (3) has a duty to make reasonable investigation of alternatives for recovering delinquent contributions; (4) has the power, but not an independent duty, to audit an employer's records if necessary to discharge the previous duties; and (5) has a duty to take reasonable actions to remedy another fiduciary's breach once aware of that breach. The Court FINDS that there is a disputed issue of fact as to when Baldan's contributions became delinquent and that the plaintiffs have not alleged facts which would allow them to proceed under 29 U.S.C. § 1106, which prohibits a fiduciary from engaging in certain transactions, independently of their claims for breach of the duties detailed above.
Finally, the Court ORDERS that a pretrial conference be set on calendar for January 30, 1997, at 4:30 p.m., and that trial be set to begin on February 19, 1997, at 9 a.m., both to be held in Courtroom 15 of the United States Courthouse, San Diego, CA,
IT IS SO ORDERED.
Dated: January 13, 1997
HONORABLE BARRY TED MOSKOWITZ
United States District Judge
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