Second Circuit Holds that Union/Employer Trusts Subject to Conflict of Interest Scrutiny
In a June 24, 2010 opinion, in Durakovic. v Building Service 32 Pension Fund, No. 09-3651, 2010 WL 2519645 (2nd Cir. Jun. 24, 2010), the United States Court of Appeals for the Second Circuit reversed the District Court’s order granting summary judgment, and held that the plaintiff’s union pension, health, and benefits funds (the “Funds”) exclusively relied on their vocational expert’s “seriously and obviously flawed” vocational report, and that “any rational trier of fact would conclude that the Funds’ decision was unsupported by substantial evidence, and therefore arbitrary and capricious.”
This decision is significant because it settled an open issue in the Second Circuit: Whether Union funds, administered by employers, including a Board comprised of both union and employer representatives, was subject to conflict of interest scrutiny under Metropolitan Life Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008).
It is an open question in our Circuit whether funds organized pursuant to 29 U.S.C. § 186(c)(5) are conflicted within the meaning of Glenn. E.g. Petri v. Sheet Metal Workers’ Nat’l Pension Fund, No. 07 Civ. 6142(JGK), 2009 WL 3075868, at *6 (S.D.N.Y. Sept. 28, 2009). We hold that they are.
Id. at *4.
The Second Circuit explained that even where the board, by statute, is evenly balanced between union and employer representatives, the conflict continues to exist:
An administrator organized pursuant to 29 U.S.C. § 186(c)(5) should be treated no differently. Here, as in Glenn, the evaluation of claims is entrusted (at least in part) to representatives of the entities that ultimately pay the claims allowed. Cf. 128 S.Ct. at 2348. This is precisely the type of interest conflict to which Glenn applies: The employer representatives have fiduciary interests that weigh in favor of the trusts’ beneficiaries on the one hand, but representational and other interests that weigh to the contrary. Cf. id. That the board is (by requirement of statute) evenly balanced between union and employer does not negate the conflict. The existence of union representation should be considered, as the district court concluded, at Glenn’ssecond step. And that the administrator is here a trust, rather than the employer itself or a third-party for-profit institution, does not control. The rejection of claims will reduce future employer contributions. See Holland v. Int’l Paper Co. Ret. Plan, 576 F.3d 240, 249 (5th Cir.2009) (Rejection of claims will limit future increases in employer contributions.); Burke v. Pitney Bowes Inc. Long-Term Disability Plan, 544 F.3d 1016, 1026-27 (9th Cir.2008); but see White v. Coca-Cola Co., 542 F.3d 848, 858 (11th Cir.2008). All but one of the purportedly contrary persuasive opinions cited by the Funds are non-precedential, outdated (pre-Glenn), or both. Only the Ninth Circuit has held in a precedential post-Glenn opinion that funds organized pursuant to 29 U.S.C. § 186(c)(5) are not conflicted within the meaning of Glenn. Anderson v. Suburban Teamsters of N. Ill. Pension Fund Bd. of Trs., 588 F.3d 641, 648 (9th Cir.2009). There may be cases in which the existence of a Glenn conflict is difficult to ascertain; but this is not one of them.
Id. at *4.
The Second Circuit in Durakovic v. Building Service 32 BJ Pension Fund noted that only the Ninth Circuit, in Anderson v. Suburban Teamsters of N.Ill. Pension Fund Bd. of Trs., 588 F.3d 641, 648 (9th Cir. 2009), has held that funds organized under 29 U.S.C. § 186 (c)(5) are not conflicted within the meaning of Glenn, but criticized Anderson v. Suburban as resting “on shaky foundation”:
That case held that a § 186 fund is not conflicted for two reasons:  because it is, by definition, a multi-employer trust in which the trustees do not have a personal interests and  because evaluations must be made by a balanced board. . . . But the first reason was contrary to the Ninth Circuit’s earlier post-Glenn decision in Burke v. Pitney Bowes, Inc. Long-Term Disability Plan, 544 F.3d 10161026 (9th Cir. 2008), which held that ‘even when a plan’s benefits are paid out of a trust, a structural conflict of interest exists that must be considered as a factor in determining whether there was an abuse of discretion.’ And the Anderson court’s support for its second reason was a citation to Jones v. Laborers Health & Welfare Trust Fund, 906 F.2d 480 (9th Cir. 1990), a pre-Glenn decision.
Id. at *4. Accordingly, to the extent the court in Durakovic v. Building Service 32 BJ Pension Fundhas distinguished and questioned the only post-Glenn precedential decision on this issue, other plaintiffs are likely to rely on Durakovic v. Building Service 32 Pension Fund in future cases outside of the Second Circuit.