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Painters of Philadelphia District Council No. 21 Welfare Fund and Dalton v. Waterhouse

argued: May 23, 1989.

PAINTERS OF PHILADELPHIA DISTRICT COUNCIL NO. 21 WELFARE FUND AND DALTON, WILLIAM; JOHNSON, HAROLD; CLARK, GEORGE; DOTO, GERARD; TIEDEKEN, HERBERT; SCHROEDER, RICHARD; LEWIN, HERBERT; AS TRUSTEES OF PAINTERS OF PHILADELPHIA DISTRICT COUNCIL NO. 21 WELFARE FUND, APPELLANTS
v.
PRICE WATERHOUSE



On Appeal From the United States District Court For the Eastern District of Pennsylvania, Civil Action No. 88-3559.

Becker, Stapleton, and Rosenn, Circuit Judges.

Author: Stapleton

Opinion OF THE COURT

STAPLETON, Circuit Judge

I.

This is an appeal from an order dismissing plaintiffs' complaint for failure to state a claim. Plaintiffs-Appellants are Painters of Philadelphia District Council No. 21 Welfare Fund and William Dalton, Harold Johnson, George Clark, Gerard Doto, Herbert Tiedeken, Richard Schroeder, Herbert Lewin as trustees of that Fund. Defendant-Appellee is the accounting firm of Price Waterhouse, which performed several yearly audits for the Painters' Fund.

We are asked in this appeal to resolve three principal issues: (1) whether Price Waterhouse was a "fiduciary" of the Fund for the years in question (1978-1982) as that term is defined by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001-1461 (1982), and consequently whether appellants have an express cause of action against Price Waterhouse under ERISA for breach of fiduciary duty, (2) if Price Waterhouse is not a fiduciary, whether appellants nevertheless have an implied cause of action against it for damages under ERISA, and (3) in the absence of such an implied cause of action, whether there is a corresponding federal common-law cause of action. We hold that Price Waterhouse is not a fiduciary under ERISA and, in view of Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 87 L. Ed. 2d 96, 105 S. Ct. 3085 (1984) and Plucinski v. I.A.M. National Pension Fund et al., 875 F.2d 1052 (3d Cir. 1989), that ERISA does not create an implied cause of action in favor of appellants against Price Waterhouse. We do not reach the question of whether appellants have a federal common-law cause of action because the issue was not raised in the district court.

II.

The Painters of Philadelphia District Council No. 21 Welfare Fund ("Fund") is an employee welfare benefit plan as defined in ERISA. 29 U.S.C. § 1002(1). The Fund provides medical and disability benefits to the employees of various painting and decorating contractors who are parties to collective bargaining agreements with Painters of Philadelphia District Council No. 21.

From April 1, 1978 to July 11, 1986, the administrator of the Fund, Accu-Benefit Plans, Inc. and Rudolph Capri as CEO and controlling owner of Accu-Benefits (collectively hereinafter referred to as "Capri"), performed various functions for the Fund, including direction of office operations, investment of assets at the direction of the trustees, processing of claims for benefits, maintaining financial records, receiving of income, and payment of expenses. Appellants claim that during the course of its administration, Capri defrauded the fund of over $1 million. Capri's fraudulent practices allegedly included grossly overcharging the Fund for administrative services actually performed, collecting fees from the Fund for services not performed, and charging the Fund for expenses not actually incurred and for expenses incurred but not properly chargeable to the Fund.

From April 1978 until after April 1982, Price Waterhouse served as auditor to the Fund. As required by ERISA, 29 U.S.C. § 1023(a)(3)(A), Price Waterhouse performed annual audits of the Fund's books and records. The complaint contains four counts. Count I alleges that, as auditor of the Fund, Price Waterhouse owed the Fund and its participants a fiduciary duty under ERISA to conduct its audits in accordance with generally accepted auditing standards. In addition, the complaint alleges that these standards required Price Waterhouse to make discretionary determinations as to the reasonableness of the fees and expenses paid to Capri and to advise the trustees as to their propriety. Price Waterhouse allegedly violated this fiduciary duty by failing to investigate and evaluate the propriety of the fees and expenses charged by Capri and by failing to notify the Fund, its trustees, and participants of the improprieties.

Count II alleges a breach of a general statutory duty of care implied from ERISA. Before us, appellants urge that this implied duty is a duty to audit in accordance with generally accepted auditing standards. Specifically, the complaint charges that Price Waterhouse conducted periodic audits of the Fund and possessed information concerning the fees charged by Capri, Price Waterhouse represented that it possessed expertise in the area of ERISA fund auditing and should have had knowledge of standard administrative fees charged for services similar to those provided by Capri, the trustees relied upon Price Waterhouse to report to them the improper fees charged the Fund by Capri, and Price Waterhouse was or should have been aware of Capri's breach of its fiduciary duties. Count III sets forth a state-law breach of contract claim and Count IV states a state-law negligence claim.

The district court dismissed the complaint, agreeing with Price Waterhouse that ERISA provides neither an express nor an implied cause of action in favor of a fund and its trustees against an accounting firm ...


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