author: SHADUR, District Judge.

text:
    Daniel F. McCARTHY, etc., Plaintiff, v. PAINEWEBBER, INC., et al., Defendants.
    No. 85 C 03328.
    United States District Court, N.D. Illinois, E.D.
    Sept. 11, 1985.

      Arthur M. Holtzman, Pederson & Houpt, Chicago, for plaintiff.
    James D. Adducci, Michael B. Roche, Schuyler, Roche & Zwirner, Chicago, for defendants.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Daniel McCarthy (“McCarthy”) sues Paine Webber, Inc. (“PaineWebber”) and Paine Webber Account Executive Thomas Downs (“Downs”) under Commodity Exchange Act (“Act”) § 4b(A) (“Section 4b(A)”), 7 U.S.C. § 6b(A) (actionable under Act § 22(a)(1), 7 U.S.C. § 25(a)(1)), seeking damages for harm suffered as a result of defendants’ allegedly fraudulent mismanagement of his commodities account. McCarthy’s Amended Complaint (the “Complaint”) also includes two pendent state law counts, one seeking recovery for common law fraud and the other under the Illinois Consumer Fraud and Deceptive Business Practices Act (“Illinois Consumer Fraud Act”), Ill.Rev.Stat. ch. 121½, §§ 261-272.

Defendants now move to dismiss McCarthy’s Complaint under Fed.R.Civ.P. (“Rule”) 12(b)(6) for failure to state a claim upon which relief can be granted. For the reasons stated in this memorandum opinion and order, defendants’ motion is granted in part and denied in part.

Facis

McCarthy, the sole proprietor of McCarthy Cattle Company (“Company”), was approached by Downs in 1982 about the possibility of trading in live and feeder cattle futures on the commodities market. Downs told McCarthy he had developed a system for preparing monthly estimates before the release of the United States Department of Agriculture’s Cattle and Feed Report, explaining he traded for both Ralston Purina and the Oscar Meyer Company. McCarthy expressed some interest in commodities trading, but he told Downs the banks and production credit associations providing Company with financing had limited his futures trading on Company’s behalf to legitimate hedge positions for the live and feeder cattle Company owned. McCarthy emphasized Company was forbidden from going long (buying futures) in live cattle without first obtaining specific approval from the production credit associations. McCarthy added he personally would consider entering into a few speculative trades from time to time, provided they involved no more than two or three contracts.

On the basis of those representations McCarthy opened an account with PaineWebber in Company’s name July 27, 1982, executing a commodity hedge letter and a commodity authorization letter. On signing the hedge letter, McCarthy stressed to Downs that trading on Company’s account was limited to legitimate hedge transactions. Downs also agreed he would make trades on the account only with prior authorization, either specific or in the form of an agreed-upon trading strategy.

Relying on Downs’ representation of an opportunity for profit with little risk, McCarthy sold April 1983 live cattle and feeder cattle futures on several dates in late December 1982 and early January 1983. Once the trades had been made McCarthy told Downs the prices obtained were not profitable for Company, so he did not want to hold the short positions for very long. Downs assured McCarthy prices would fall in January and the positions could then be offset at a profit. Profits did fall slightly on various dates in January (compare Complaint ¶ 13 with Complaint Ex. A) but Downs did not buy out the short positions, later telling McCarthy he “froze.” Though prices rose through February and March, Downs continued to hold the positions, telling McCarthy on at least two occasions that the market would soon break so as to allow profitable offsets. Defendants finally offset the positions on March 24, 29 and 30 at a loss to McCarthy of nearly $230,000, including over $5,000 in commissions.

Throughout March Downs continued to trade on Company’s account. By the end of the month 416 trades had been made on the account, generating commissions total-ling $11,000 and yielding losses (including commissions) of over $38,000. At some point before April 13 Downs also bought long positions in April cattle that he failed to offset with corresponding short positions, against McCarthy’s instructions that he never wanted to be in a position of having to take delivery on futures contracts. As a result of Downs’ failure to respect his wishes, McCarthy was required to take delivery in Sioux City, Iowa on April 13 of seven loads (each at 40,000 pounds) of live beef cattle. McCarthy incurred a loss of approximately $7,000.

In May 1983 McCarthy told Downs he was leaving town and there was to be no trading in the account during his absence without his authorization. Before leaving May 26 McCarthy gave Downs dates, places and telephone numbers where he could be reached while he was away. Late on June 7, the day of McCarthy’s return, Downs called to say he had to see McCarthy that evening. They met in McCarthy’s office, and Downs revealed that on May 27 and June 1 he had sold 56 futures contracts for June 1983 cattle on Company’s account at prices ranging from $65.30 to $66.70. He admitted he made no effort to reach McCarthy before taking the short positions, but he had thought June 1983 contracts would be trading at $62 to $63 before the contracts closed. Because things had not worked out Downs said PaineWebber would take over the short positions. In fact PaineWebber refused to take over the positions, and they were offset June 20 at a loss to McCarthy of over $35,000, including nearly $3,400 in commissions.

Contentions of Parties

Against that factual background McCarthy asserts various claims, the first five counts being grounded in Section 4b(A) and the other two looking to state law:

1. Count One charges defendants with cheating and defrauding McCarthy in connection with short positions opened in late December 1982 and early January 1983 and finally closed in late March 1983.
2. Count Two claims unauthorized trading in connection with the positions opened on May 27 and June 1, 1983 while McCarthy was out of town.
3. Counts Three and Five charge churning in connection with (a) the trades forming the basis of Count Two and (b) the 416 trades in Company’s account during March 1983.
4. Count Four asserts cheating and defrauding that resulted in McCarthy’s having to take delivery of live beef cattle in April 1983.
5. Counts Six and Seven advance pen-. dent state law claims (a) for common law fraud and (b) under the Illinois Consumer Fraud Act.

Defendants ask dismissal of Counts One, Four, Six and Seven, claiming:

1. Count One is barred by the two-year limitations period prescribed by Act § 22(c).
2. Both Counts One and Four fail to allege scienter on defendants’ part, a necessary element of a Section 4b(A) claim.
3. Count Six fails to allege the elements necessary to state a claim for common law fraud under Illinois law. In any case PaineWebber cannot be liable for punitive damages under Count Six simply on the basis of respondeat superior.
4. Count Seven (under the Illinois Consumer Fraud Act) must be dismissed because that state statute has been preempted by the Act’s comprehensive federal scheme regulating commodities trading.

This opinion considers each of those arguments in turn.

Statute of Limitations

Act § 22(c), part of the section that expressly creates a private right of action for Act violations, says:

Any such action must be brought within two years after the date the case of action accrued.

Defendants argue McCarthy’s cause of action as to the Count One positions accrued from March 24 to March 30, 1983, the dates those positions were closed out. That would bring the claim (originally sued on April 9, 1985) outside the two-year limitations period.

McCarthy does not challenge the principle underlying defendants’ focus on the dates the positions were closed out: “the general proposition that the statute of limitations does not begin to run on a continuing wrong until the wrong is over and done with.” Taylor v. Meirick, 712 F.2d 1112, 1118 (7th Cir.1983). Rather McCarthy argues he did not know of the fraud until at least sometime in April, when he received a statement reflecting the closing out of the positions and the attendant losses. And McCarthy Mem. 3 adds:

It was not really until May and June 1983, when the fraudulent conduct of defendants became so blatant ... that plaintiff realized his account was being mishandled____

But the very allegations in the Complaint belie those arguments. McCarthy knew on March 21 (confirming like knowledge he had earlier) (1) Downs continued to hold the positions open and (2) given market prices, they could be offset only at a loss. Moreover he knew the April 1983 positions had to be closed out promptly if he was not to be in the position of having to close on the contracts. Finally, he knew Downs had been far less than forthright in his handling of the matter. Even if McCarthy did not know the precise date on which the positions were closed out until sometime in April, he was very much aware that such an event was imminent in late March. Given that awareness, there is no reason for looking beyond the actual end-of-March dates on which the positions were closed out to determine when the Count One cause of action accrued. Before those dates McCarthy was certainly on notice (1) that the transaction had not worked out as planned and (2) that Downs was likely to blame for the debacle. That knowledge of a potential claim was enough to trigger a duty of inquiry and to start the limitations period running, even if McCarthy did not yet know the full particulars of how the wrong was committed. See Welcker v. United States, 752 F.2d 1577, 1580 (Fed.Cir.1985).

Much the same reasons require rejection of McCarthy’s claim the running of the limitations period was tolled under the fraudulent concealment doctrine. Tomera v. Galt, 511 F.2d 504, 510 (7th Cir.1975) teaches (citations omitted):

At least two types of fraudulent behavior toll a statutory period____ In the first type, the most common, the fraud goes undiscovered even though the defendant after commission of the wrong does nothing to conceal it and the plaintiff has diligently inquired into its circumstances. The plaintiff’s due diligence is essential here____ In the second type the fraud goes undiscovered because the defendant has taken positive steps after commission of the fraud to keep it concealed____ This type of fraudulent concealment tolls the limitations period until actual discovery by the plaintiff.

McCarthy calls on the first of those principles, adopting the reasoning of Hupp v. Gray, 500 F.2d 993, 997 (7th Cir.1974):

While the existence of a fiduciary relationship is, no doubt, one factor which a court should consider in determining whether a plaintiff has exercised due diligence, a mere allegation that such a relationship existed is alone not necessarily determinative. A court should also consider other factors, including the nature of the fraud alleged, the opportunity to discover the fraud and the subsequent actions of defendant.

Defendants, McCarthy contends, were fiduciaries who controlled the information flow to him and who continued to mischaracterize the trading climate.

Of course the existence of a fiduciary relationship is no license to ignore events giving rise to strong suspicion. Id. As this opinion has already noted, McCarthy’s Complaint acknowledges he knew Downs was not adhering to the pre-established trading scheme and significant losses were a distinct possibility. Moreover McCarthy kept track of the status of the account through January, February and March. True enough, Downs continued to project a market turnaround that would save the day, but the need to draw reasonable pro-McCarthy inferences does not include the strained notion that those projections sufficed to lull him into a false sense of security — particularly in light of his experience with Downs in the first months of 1983. Again, taking the facts as alleged in the Complaint, it is beyond doubt McCarthy was on notice something was potentially amiss at least before the end-of-March-1983 closeout dates — at least enough to trigger inquiry (what Tomera and Hupp label “due diligence”). It follows McCarthy is not in a position to invoke the fraudulent concealment doctrine.

Though McCarthy’s cause of action on the Count One claims thus accrued in late March 1983 when the short positions were closed out and he sustained the damages from Downs’ conduct, the original complaint was not filed until April 9, 1985. Count One is dismissed as untimely.

Scienter

In view of that disposition of Count One, defendants’ scienter argument need be addressed only as to Count Four. In that respect defendants argue:

1. Section 4b(A), which makes it unlawful “to cheat or defraud or attempt to cheat or defraud” another person in connection with a commodities transaction, by its very terms incorporates a scienter element.
2. McCarthy fails to allege conduct with fraudulent intent.
3. Hence he fails to state a claim under Section 4b(A).

McCarthy counters by citing the opinion of the Commodities Futures Trading Commission (“CFTC”) in Gordon v. Shearson Hayden Stone, Inc., [1980-1982 Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 21,016, at 23,981 (CFTC 1980), aff'd sub nom. Shearson Loeb Rhoades, Inc. v. CFTC, 673 F.2d 1339 (9th Cir.1982) (unpublished decision) for the proposition “that a breach of a fiduciary duty, even if committed negligently, constitutes fraud as proscribed by Section 4b(A) of the Act.” McCarthy says defendants’ failure to offset certain long positions, which forced McCarthy to take delivery of cattle April 13, 1983, was in clear violation of his instructions about how his account was to be handled, thus breaching the fiduciary obligation an agent owes his principal.

Gordon’s linchpin is its observation (id. at 23,976):

When Congress enacted Section 4b in 1936, the common law concept of “fraud” encompassed both actual and constructive fraud.

Typically courts treat a breach of a fiduciary relationship as an instance of constructive fraud (that is, as a breach of duty held actionable irrespective of any moral guilt). See 19 I.L.P. Fraud § 5, at 558 (1956 & supp.1985), discussing the Illinois law of constructive fraud. Gordon, [1980-82 Transfer Binder] at 23,976, noting that Section 4b as a whole applies to persons acting “for or on behalf of” any other person-, reasoned:

[W]hen Congress prohibits “fraud” in the context of remedial legislation applicable to fiduciaries, it is presumed that Congress has adopted the flexible legal principles of fraud, including constructive fraud.

That construction of Section 4b(A) has not, on the whole, met with approval in the courts. See, e.g., McIlroy v. Dittmer, 732 F.2d 98, 102 (8th Cir.1984); Crook v. Shearson Loeb Rhoades, Inc., 591 F.Supp. 40, 47-48 (N.D.Ind.1983); Herman v. T. & S. Commodities, Inc., 578 F.Supp. 601, 603 (S.D.N.Y.1983); but see Sail v. G.H. Miller & Co., 612 F.Supp. 1499 (D.Colo.1985) (opting to follow Gordon). Judicial unwillingness to adopt the Gordon analysis must reflect in part its neglect of the basic principle of statutory construction that mandates resort first to the plain language of the statute. Only when those words prove unclear need a court explore the legislative history. See Blum v. Stenson, 465 U.S. 886, 104 S.Ct. 1541, 1548, 79 L.Ed.2d 891 (1984); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756, 95 S.Ct. 1917, 1935, 44 L.Ed.2d 539 (1975) (Powell, J., concurring) (“The starting point in every case involving construction of a statute is the language itself”).

Certainly Gordon did not pause at all over the words of the statute, leaping instead into the subtleties encompassed by the common law concepts of actual and constructive fraud. That delinquency caused it to miss the clear import of what Congress said, as set out simply in McIlroy, 732 F.2d at 102:

Section 4b(A) prohibits “cheating],” “defrauding],” and “attempting] to cheat or defraud.” The words of the statute themselves negate any inference that Congress meant to proscribe unintentional acts under section 4b(A). See CFTC v. Savage, 611 F.2d 270, 283 (9th Cir.1979) (“to be charged with a violation of 4b(A) [one] must have known that he was cheating”); Master Commodities, Inc. v. Texas Cattle Management, 586 F.2d 1352, 1355-56 (10th Cir.1978) (section 4b “seems clearly aimed at intentionally deceptive conduct”). Indeed, the words “cheat” and “defraud” themselves imply a degree of intentionality that would probably render the inclusion of “willfully” in section 4b(A) superfluous.

In fact, ordinary English usage does not impart to the transitive verb “defraud” the less active notions of malfeasance encompassed by the concept of “constructive fraud.” Just as “quasi-contract” is a shorthand phrase for something that is not really a contract, connoting instead the law's imparting of some contract-like consequences to a different legal relationship, so “constructive fraud” does not describe truly fraudulent conduct. Thus while an individual who simply breaches a fiduciary obligation may well be subjected to the consequences of what the law terms “constructive fraud,” it does not sit well on the tongue to say he has “defrauded” the party to whom the obligation is owed.

In any event, it is most unlikely Congress would have relied merely on the word “defraud” if it really aimed to import into Section 4b(A) the common law doctrine of constructive fraud. At the least one would expect to find in the legislative history some mention of the distinction between actual and constructive fraud, particularly because (1) Section 4b otherwise emphasizes that the conduct it proscribes must be undertaken willfully and (2) the most common usages of the verbs “cheat” and “defraud” themselves suggest intentionality. Yet Gordon, [1980-82 Transfer Binder] at 23,977-79 uncovered no such discussion in the legislative history.

Gordon’s analysis of the legislative history {id. at 23,978) is substantially misguided, focusing as it does on the fact Congress adopted Section 4b(A) as written, rather than the following proposed language that would have made it unlawful:

knowingly and with intent to defraud any person, to fail truly, fully, and correctly to account to such person, or to cheat or defraud or attempt to cheat or defraud any person in any manner whatsoever, ____

Gordon would have it the striking of the first clause from the statute as enacted indicates Congress meant to exclude scienter as a necessary element of a Section 4b(A) violation. It seems clear, however, that clause was omitted simply because the proscription it embodied was substantially encompassed by Section 4b(B) of the statute as enacted, which prohibits the making of “any false report or statement” concerning a commodities transaction.

Finally Gordon’s, argument from statutory structure is unpersuasive. It notes (id. at 23,977) Act §§ 4b(B), (C) and (D):

make it unlawful “willfully to make or cause to be made.. .any false report or statement . ..” (Section 4b(B)); “willfully to deceive or attempt to deceive .:. ” (Section 4b(C)); and “willfully and knowingly to take, without con sent, the opposite side of a customer’s trades (Section 4b(D)). (Emphasis added).

But the verbs used in those subsections do not of themselves import intentionality as clearly as do “cheat” and “defraud.” In fact the argument from structure runs quite the other way. As the preceding text and n. 5 of this opinion have already suggested (and as the previously-quoted McIlroy excerpt does as well), the use of the term “willfully” elsewhere in Section 4b only highlights the element of intentionality implicit in Section 4b(A) and lends weight to the conclusion Congress meant to require a showing of scienter in that context as well.

This conclusion (that Section 4b(A) includes a scienter requirement) calls for a look at the scope of scienter: Does it encompass only intentional conduct, or reckless conduct too? Defendants’ R.Mem. 9 appears to concede the latter in quoting McCurnin v. Kohlmeyer & Co., 347 F.Supp. 573, 576 (E.D.La.1972), aff'd, 477 F.2d 113 (5th Cir.1973):

The [Act] does not use sweeping terms. Its pejoratives are simple and pointed: it uses the words “cheat” and “defraud” and “wilfully.” By any definition these connote deliberate acts or a degree of negligence that is so gross as to approach wilfulness.

That view seems sound. Elements of the Gordon analysis of legislative history, though unpersuasive in eliminating scienter as an element of a Section 4b(A) violation, do justify extending the proscription to reckless conduct. After all the Act was meant “to insure fair practice and honest dealing on the commodities exchanges.” H.Rep. No. 421, 74th Cong., 1st Sess. 1, 5, 12 (1935), quoted in Gordon, [1980-82 Transfer Binder] at 23,979. In addition the Act was motivated by the conviction that “[c]ertain trade practices involving the cheating of customers ... must be dealt with more adequately than is possible under the present law.” S.Rep. No. 1431, 74th Cong., 1st Sess. 3 (1935), also quoted on the same page of the Gordon opinion. It seems likely, then, Congress intended Section 4b(A) to proscribe reckless conduct. See First Commodity Corp. of Boston v. CFTC, 676 F.2d 1, 6-7 (1st Cir.1982).

Another analogy fortifies that conclusion: the parallel of the securities laws. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S.Ct. 1375, 1380, 47 L.Ed.2d 668 (1976), construing Securities Exchange Act of 1934 § 10(b) (“Section 10(b)”), 15 U.S.C. § 78j(b), concluded the phrase “manipulative or deceptive device or contrivance” embodied a scienter requirement. While Hochfelder, id. at 193-94 n. 12, 96 S.Ct. at 1380-81 n. 12 left open whether Section 10(b) bars reckless as well as knowing or intentional misconduct, the vast majority of appellate courts to address the question have held that it does. See First Commodity Corp., 676 F.2d at 7 and cases there cited. If the phrase “manipulative or deceptive device or contrivance” includes reckless conduct, it would seem “cheat” and “defraud” ought to do so too.

With the applicable standards thus buttoned down, it is time to return to the allegations of Complaint Count Four. McCarthy does not in terms claim intentional or reckless misconduct on defendants’ part in connection with Downs’ failure to close out the long positions before the closing of the contracts. But Complaint II30 alleges “gross mishandling” of his account because (Complaint ¶29):

Downs and Painewebber [sic] knew that McCarthy did not want a long (buy) futures contract ever to come due without the entry of a corresponding offset position. If a long position were to come due, McCarthy could be required to take delivery of the commodity.

On that set of allegations McCarthy may perhaps prove defendants were at least reckless in their handling of the long positions. Under the liberal standard enunciated in Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957) and recently reaffirmed in Hishon v. King & Spalding, 467 U.S. 69, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984), that is enough for Count IV to survive defendants’ Rule 12(b)(6) motion.

Common Law Fraud

Defendants urge Count Six must be dismissed because Counts One through Five do not sufficiently allege the first of the five elements of a common law fraud claim (Trautman v. Knights of Columbus, 121 Ill.App.3d 911, 914, 77 Ill.Dec. 294, 296, 460 N.E.2d 350, 352 (1st Dist.1984)):

(1) a false representation of material facts as opposed to opinion; (2) made by one who knew or believed the representation to be untrue; (3) made to a party who had a right to rely on the representation and, in fact, did so; (4) made for the purpose of inducing the other party to act, or to refrain from acting; and (5) that led to injury to the person who relied on it.

According to defendants, the misrepresentations alleged in Count One through Five involved at best future conduct. As Defendants’ Mem. 9-10 said as to Count One:

[Count One] also alleges that Downs made predictions of the future behavior of the commodities market and misrepresented how the defendants would handle plaintiff’s account. Such predictions of future events are clearly not actionable as fraud under Illinois common law.

But as Steinberg v. Chicago Medical School, 69 Ill.2d 320, 334, 13 Ill.Dec. 699, 706, 371 N.E.2d 634, 641 (1977) teaches:

We concede the general rule denies recovery for fraud based on a false representation of intention or future conduct, but there is a recognized exception where the false promise or representation of future conduct is alleged to be the scheme employed to accomplish the fraud.

Complaint 1134 alleges the existence of such a scheme (incorporating for that purpose the substantive allegations of Counts One through Five). It is not inconceivable that McCarthy could deliver as his Complaint advertises — that he could prove Downs represented his willingness to adhere to a carefully devised trading plan, thereby inducing McCarthy to open an account, yet knowing all along Downs was not going to abide by the plan, whether by engaging in churning, unauthorized trading or other wrongful activity. Such conduct would fall within the Steinberg exception. Because McCarthy would certainly be entitled to rely on such a representation and because he has plainly alleged injury, it follows that he has stated a cause of action for common law fraud under the ConleyHishon standard for testing the allegations in the Complaint.

That leaves for consideration, on the common-law fraud claim, PaineWebber’s motion to strike McCarthy’s prayer for punitive damages. Illinois law is clear that respondeat superior principles alone will not justify an award of punitive damages against an employer. Rather as Tolle v. Interstate Systems Truck Lines, Inc., 42 Ill.App.3d 771, 773-74, 1 Ill.Dec. 437, 439-40, 356 N.E.2d 625, 626-27 (5th Dist.1976)(citations omitted) teaches, Illinois has joined the ranks of:

[o]ther courts [that] have followed a complicity rule whereby the corporate master is liable for punitive damages only when the superior officers order, participate in, or ratify outrageous conduct.
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The complicity rule, on the other hand, seems consistent with the rationale behind the concept of punitive damages. Either as a basis for punishment or for deterrence of wrongdoers, some deliberate corporate participation should be shown before this sanction is applied____ The complicity analysis will allow punitive damages where the institutional conscience of the corporate master should be aroused while protecting the corporate master from liability for punitive damages when a properly supervised employee acts with requisite circumstances of aggravation.

See also Mattyasovszky v. West Towns Bus Co., 61 Ill.2d 31, 36-37, 330 N.E.2d 509, 512 (1975).

At least at this point, the Complaint does not include detailed allegations indicating PaineWebber’s complicity with Downs. That is not necessarily fatal, for McCarthy has yet to undertake the discovery necessary to plumb the relationship between Downs and PaineWebber. McCarthy does allege PaineWebber declined to provide help in early 1983, when McCarthy was having trouble reaching Downs about the status of the short positions underlying the Count One claims (Complaint ¶ 7). In addition Complaint ¶ 22 alleges PaineWebber refused to take over the unauthorized positions forming the basis of the Count Two claims. That conduct could be wholly innocent of complicity, but on the other hand it could betoken either ratification of Downs’ handling of the account or a reckless failure to supervise Downs properly. In the latter two events a punitive damages award might be sustained against PaineWebber under the Illinois complicity rule.

Given the Conley-Hishon principle, the prayer will be retained for now. But if the facts develop otherwise in discovery, McCarthy will be expected to withdraw the punitive damages claim.

Illinois Consumer Fraud Act

Finally defendants contend McCarthy’s Illinois Consumer Fraud Act claim must be dismissed because that statutory remedy has been preempted by the Act’s comprehensive regulatory scheme. Though it is settled the Act does not wholly preempt state common law causes of action, see Kerr v. First Commodity Corp. of Boston, 735 F.2d 281, 288 (8th Cir.1984), defendants point to cases such as W & W Farms, Inc. v. Chartered Systems Corp. of New York, 542 F.Supp. 56, 59-60 (N.D.Ind.1982), which observed:

The [Act] gave the [CFTC] exclusive jurisdiction over all accounts and transactions in commodities. 7 U.S.C, § 2. However the same provision granting exclusive jurisdiction also limits jurisdiction by providing that “[n]othing in this section shall supersede or limit the jurisdiction conferred on courts of the United States or States.” Id. It logically follows that the Act preempts private actions based on federal or state statutory schemes which contemplate agency regulation which would interfere with the [CFTC’s] jurisdiction.

See also Witzel v. Chartered Systems Corp. of New York, 490 F.Supp. 343, 347 (D.Minn.1980); Bache Halsey Stuart, Inc. v. Hunsucker, 38 N.C.App. 414, 248 S.E.2d 567, 570-71 (1978) (utilization of private action under North Carolina unfair trade practices statute could encompass a cause of action in state Attorney General to restore money or property, or cancel any contracts obtained in violation of statute).

Taylor v. Bear Stearns & Co., 572 F.Supp. 667, 672-74 (N.D.Ga.1983) reviewed that case law, yet declined to dismiss an action based on the Georgia unfair consumer practices act, even though that statute also contemplates the possibility of suits by state officials. See Rothschild, A Guide to Georgia’s Fair Business Practices Act of 1975, 10 Ga.L.Rev. 917, 930-34 (1976). Taylor, 572 F.Supp. at 674, reasoned the plaintiff had invoked no provision of the Georgia statute inconsistent with the regulatory scheme of the Act. If as discovery proceeded such conflict arose, recovery under the state statute could then be barred.

That approach is persuasive to this Court. There is no logical reason not to permit the range of traditional common law actions to be expanded by state statute, so long as the Act’s regulatory scheme is not impaired as a consequence. McCarthy has not specified the precise contours of his claim under the Illinois Consumer Fraud Act, but it is not obvious at this stage that such a claim runs counter to the purposes of the Act. Accordingly defendants’ motion to dismiss Count Seven is denied, without prejudice to its renewal later in this litigation should it appear the Illinois statutory claim is at odds with the Act’s regulatory scheme.

Conclusion

Defendants’ Rule 12(b)(6) motion is granted as to Count One. It is denied as to Counts Four, Six and Seven subject to the caveats expressed in the body of this opinion. Defendants are ordered to answer all surviving counts of the Complaint on or before September 23, 1985.

      . McCarthy's original complaint included claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 ("RICO”). This Court's sua sponte April 11, 1985 memorandum opinion and order dismissed the RICO claims without prejudice. Next defendants filed their May 21 motion to dismiss. From the bench this Court (a) denied that motion in part, (b) granted McCarthy leave to amend his original complaint (an absolute right McCarthy had under Fed.R.Civ.P. 15(a) in any event) and (c) ordered briefing on the motion's surviving elements. Defendants filed their supporting memorandum June 20, focusing on the language of the original complaint. On July 9 McCarthy responded with a memorandum and the Complaint. Defendants' July 15 reply afforded them ample opportunity to address any issues raised for the first time by the Complaint — an opportunity defendants did not hesitate to take.

      . As always with respect to a motion to dismiss, the well-pleaded factual allegations of the Complaint are taken as true, with all reasonable factual inferences drawn in McCarthy’s favor.
        Wolfolk v. Rivera, 729 F.2d 1114, 1116 (7th Cir.1984). That approach, of course, involves no actual findings of fact.

      . It will be recalled McCarthy's cattle business necessarily made him familiar with the mechanics of live and feeder cattle futures trading (see Complaint ¶ ¶ 8-9). This is not of course to hold him to knowledge of Downs’ claimed improprieties, but it does mean McCarthy understood the matters next referred to in the text.

      . Black’s Law Dictionary (5th ed. 1979) defines both terms:
      Cheat, v. To deceive and defraud. It necessarily implies a fraudulent intent. The words "cheat and defraud" usually mean to induce a person to part with the possession of property by reason of intentionally false representations relied and acted upon by such person to his harm. They include not only the crime of false pretenses, but also all civil frauds, and include all tricks, devices, artifices, or deceptions used to deprive another of property or other right.
      Defraud. To make a misrepresentation of an existing material fact, knowing it to be false or making it recklessly without regard to whether it is true or false, intending one to rely and under circumstances in which such person does rely to his damage. To practice fraud; to cheat or trick. To deprive a person of property or any interest, estate, or right by fraud, deceit, or artifice.

      . Obviously the first phrase of the earlier proposal did not attach to both infinitive clauses — it would make no sense to engage in a redundancy by saying "knowingly and with intent to defraud any person, ... to cheat or defraud or attempt to cheat or defraud any person in any manner whatsoever.” Even apart from the oddity of that locution, it should be noted the language elided in that quotation spoke of "such person" (indicating a reference back to the antecedent "any person”), while the "cheat or defraud" clause refers to "any person” (indicating a self-contained provision, rather than a reference back to the earlier “any person”). Thus the sensible reading of the initial proposal was that it embraced two separate prohibitions:

        1. "knowingly and with intent to defraud any person, to fail truly, fully, and correctly to account to such person” (so that an innocently mistaken accounting would not fall afoul of the Act); or
      2. "to cheat or defraud or attempt to cheat or defraud any person in any manner whatsoever.”
      Consequently normal draftsmanship principles, coupled with the normal meaning of language, strongly suggest each of those separate prohibitions incorporated a scienter requirement, the first by use of the “intent to defraud" language and the second because scienter is within the conventional meaning of "cheat or defraud.”

      . Because Illinois prescribes a five-year limitations period for common-law fraud claims (Ill.Rev.Stat. ch. 110, ¶ 13-205), the untimeliness of McCarthy’s Count I allegations for Section 4b(A) purposes does not bar the common-law claim based on the same facts.

      . Steinberg marks a real departure from most of the Illinois case law. If read too broadly, its exception could swallow up the basic rule itself. But in the context of a Rule 12(b)(6) motion, a court should err on the side of sustaining plaintiff’s claim, for the difficult line between the general rule and the Steinberg exception is necessarily better defined in terms of the actual facts than as a matter of mere pleading.

      . Those holdings reflect the legislative purpose of the Act. As Kotz v. Bache, Halsey Stuart, Inc., 685 F.2d 1204, 1207 (9th Cir.1982) put it:
      Congress clearly intended to create a single agency to regulate the field: "the Commission's jurisdiction where applicable, supersedes State as well as Federal agencies" and "if any substantive State law regulating futures trading was contrary or inconsistent with Federal law, the Federal law would govern.” S.Rep. No. 93-1194, 93d Cong., 2d Sess. 35-36 (1974) (emphasis added.)

      . No such impermissible tension is created by the Illinois statutes provision for recovery of attorneys' fees, see Ill.Rev.Stat. ch. 121½ ¶ 270a(c), while Act § 22 contains no such provision. See Taylor, 572 F.Supp. at 672-74 (applying a comparable approach in a different context).


source: Caselaw Access Project

author: MURRAY M. SCHWARTZ, Chief Judge.

license: Public Domain

text:
    AIRCO INDUSTRIAL GASES, Plaintiff, v. TEAMSTERS HEALTH AND WELFARE PENSION FUND OF PHILADELPHIA & VICINITY, Defendant.
    Civ. A. No. 84-123 MMS.
    United States District Court, D. Delaware.
    Sept. 11, 1985.

      Stanley William Balick, Stanley William Balick, P.A., Wilmington, Del., of counsel; Robert J. Bray, Jr., and Thomas M. Tammany, Robert J. Bray & Associates, Philadelphia, Pa., for plaintiff.
    Francis J. Trzuskowski, Trzuskowski, Kipp, Kelleher & Pearce, P.A., Wilmington, Del., of counsel; James J. Leyden, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for defendant.
   OPINION

MURRAY M. SCHWARTZ, Chief Judge.

Plaintiff Aireo Industrial Gases (“Aireo”) instituted this action against the Teamsters Health and Welfare Pension Fund of Philadelphia and Vicinity (“Fund”) to recover payments mistakenly made to the Fund. Plaintiff alleges causes of action under sections 301 and 302 of the Labor Management Relations Act (“LMRA”), as amended, 29 U.S.C. §§ 185, 186, section 403(c) of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. § 1103(c), and the Delaware law of unjust enrichment. Jurisdiction is alleged under 28 U.S.C. § 1331, the federal question jurisdictional statute.

With the relevant facts being largely undisputed, the parties have filed cross-motions for summary judgment. The question presented by these motions is whether an employer has a cause of action under the LMRA, ERISA, federal common law, or state law to recover contributions mistakenly made to a pension fund. For the reasons stated below, the Court finds that the employer has no cause of action under the LMRA or ERISA, but it may recover under the federal common law of unjust enrichment. However, summary judgment cannot be granted on an unjust enrichment claim because the financial stability of the Fund is a material factual issue in dispute.

I. FACTS

The relevant facts regarding the mistaken payments are not in dispute. Aireo is an employer of union labor located in Delaware. The Fund is a multiemployer employee benefit plan as defined in ERISA. During the period in question, Aireo was a party to two separate collective bargaining agreements, one with the Highway Truck Drivers and the other with the Helpers Union, Local 107. One of these agreements, and its predecessor agreements, obligated Aireo to make contributions to the Fund on behalf of Airco’s driver employees. Under the other agreement, Aireo was obligated to make pension contributions on behalf of its production and maintenance employees to a separate pension plan, and not to the Fund.

In 1976, Aireo erroneously informed the Fund that John Lucas and Walter Dobromilski were employees for whom monthly contributions were due. The Fund accepted this representation without verifying it. In fact, Lucas and Dobromilski were Aireo production and maintenance employees, and Aireo was not obligated to contribute to the Fund on their behalf. From June, 1976 to April, 1983, Aireo made a total of $25,831.41 in payments to the Fund on behalf of Lucas and Dobromilski.

In 1983, Aireo discovered its error during a review of its corporate pension plan contributions. Neither party had been aware of the error until Aireo discovered it. Aireo notified the Fund of the error and demanded that the Fund return the mistakenly paid money, plus interest. In response, the Fund, in purported reliance on the decision in Crown, Cork & Seal Co. v. Teamsters Pension Fund of Philadelphia, 549 F.Supp. 307 (E.D.Pa.1982), aff'd mem., 720 F.2d 661 (3d Cir.1983), rejected the demand on September 26, 1983. The Fund’s letter stated: “[T]he Trustees of the Teamsters Health and Welfare and Pension Funds of Philadelphia and Vicinity [sic] have concluded that no overpaid contributions shall be returned to any employer. Likewise, ... the Trustees have further determined that no contributing employer shall be entitled to an offset against delinquent contributions due and owing.” Complaint, Docket Item (“Dkt.”) 1, Exh. E. The Fund’s Administrator later stated that Lucas and Dobromilski will never be eligible to receive pension benefits from the Fund, because they are not covered employees under the relevant collective bargaining agreement. Deposition of Charles J. Schaffer, Jr., Dkt. 10, at 51-52. Aireo brought this action on March 2, 1984 to recover the mistaken contributions made on behalf of Lucas and Dobromilski.

11. ANALYSIS

Plaintiff seeks recovery of the money mistakenly paid to the Fund under several alternative theories. Each will be discussed in turn.

A. LMRA

Plaintiff alleges two causes of action under the LMRA: first, a cause of action under section 301(a) of the LMRA, 29 U.S.C. § 185(a); second, a cause of action founded on section 302(c)(5)(B) of the LMRA, 29 U.S.C. § 186(c)(5)(B). Section 185(a) provides, in pertinent part: “Suits for violation of contracts between an employer and a labor organization ... may be brought in any district court of the United States having jurisdiction of the parties____” Plaintiff contends its payments were violative of its collective bargaining agreement with the Fund because Lucas and Dobromilski were not employees within that bargaining unit. It follows, Aireo argues, that the money should be returned.

The most evident defect in plaintiff’s argument is that this is not an action “for violation of contracts.” The collective bargaining agreement does not forbid the Fund from accepting, or require the Fund to return, mistakenly paid contributions. The only case cited by plaintiff in support of its argument, Laborers Health & Welfare Trust Fund v. Kaufman & Broad of Northern California, Inc., 707 F.2d 412 (9th Cir.1983), is inapposite. Plaintiffs there sued to enforce a contract, and the primary issue was one of contract interpretation. The Fund, however, has not breached its contract with Aireo, as mistaken payments are not covered by the contract.

Plaintiff’s second LMRA theory is that it has a cause of action founded on section 302(c) of the LMRA, 29 U.S.C. § 186(c), which allegedly forbids payments by an employer to an employee representative unless they are made pursuant to a written agreement. Section 186(e), which grants federal courts jurisdiction to enforce section 186, provides that district courts only have the power “to restrain violations of this section.” 29 U.S.C. § 186(e). A damage remedy is not provided. For this reason, other federal courts faced with this issue have held that section 186 does not authorize an action by an employer for restitution of mistaken payments. See, e.g., Award Service, Inc. v. Northern California Retail Clerks Unions & Food Employers Joint Pension Trust Fund, 763 F.2d 1066, 1069-70 (9th Cir.1985); R.V. Cloud Co. v. Western Conference of Teamsters Pension Trust Fund, 566 F.Supp. 1426, 1430 (N.D.Cal.1983). Plaintiff has not demonstrated why those cases are wrong. Accordingly, plaintiff’s causes of action under the LMRA will be dismissed.

B. ERISA

Plaintiff’s primary claim is that its action for recovery of mistaken contributions is authorized under ERISA. Plaintiff relies on section 403(c)(2)(A) of ERISA, 29 U.S.C. § 1103(c)(2)(A), as amended by the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”). Section 1103(c) provides, in pertinent part:

(1) Except as provided in paragraph (2), ... the assets of a plan shall never inure to the benefit of any employer____
(2) (A) In the case of a contribution, ... (ii) made by an employer to a multiemployer plan by a mistake of fact or law ... paragraph (1) shall not prohibit the return of such contribution ... to the employer within 6 months after the plan administrator determines that the contribution was made by such a mistake.

Plaintiff alleges that the language in section 1103(c)(2)(A)(ii) allowing funds to return mistaken contributions creates a cause of action in favor of employers for the return of those contributions.

Plaintiff’s ERISA contentions raises two related questions: First, whether this Court has jurisdiction over plaintiff’s claim under ERISA; second, whether plaintiff’s claim states a cognizable cause of action. Section 502(a) of ERISA, 29 U.S.C. § 1132(a), authorizes civil actions brought by the Secretary, or by a participant, beneficiary or fiduciary. The statute further provides that “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). The Third Circuit Court of Appeals has recently stated that this section and its list of parties who may sue must be read “narrowly and literally.” Northeast Department ILGWU Health & Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund, 764 F.2d 147, 153 (3d Cir.1985). In that case, the appellate court held that section 1132 does not authorize federal jurisdiction over a suit brought by an employee pension fund. Id. at 154; see also New Jersey State AFL-CIO v. New Jersey, 747 F.2d 891, 892 (3d Cir.1984) (labor unions cannot bring suit under 29 U.S.C. § 1132). It follows that plaintiff’s action cannot be maintained under 29 U.S.C. § 1132 because employers are not among the potential plaintiffs listed in the statute.

Plaintiff has attempted to avoid this problem by alleging that jurisdiction exists under 28 U.S.C. § 1331, which gives federal district courts jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States.” Id. “A claim ‘arises under’ federal law only if ‘[a] right or immunity created by the Constitution or laws of the United States [is] an element, and an essential one, of the plaintiff’s cause of action.’ ” Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 1847, 77 L.Ed.2d 420 (1983), quoting Gully v. First National Bank, 299 U.S. 109, 112, 57 S.Ct. 96, 97, 81 L.Ed. 70 (1936).” New Jersey State AFL-CIO v. New Jersey, 747 F.2d at 892. Plaintiff alleges that this action arises under section 403(c) of ERISA, 29 U.S.C. § 1103(c), because plaintiff’s alleged cause of action is based on that section.

The issue of what actions arise under ERISA pursuant to 28 U.S.C. § 1331 was recently addressed by a divided panel of the Third Circuit Court of Appeals in Northeast Department ILGWU Health & Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund, supra. Although the court found that federal subject matter jurisdiction existed, each panel member reached that conclusion through different reasoning. See 764 F.2d at 151. It is unnecessary, however, for this Court to inject itself into the debate within the Third Circuit appellate court, because plaintiff alleges a cause of action under a specific section of ERISA. An action which requires a construction of a federal statute arises under federal law for section 1331 purposes. See Lindy v. Lynn, 501 F.2d 1367, 1369 (3d Cir.1974); Award Service, Inc. v. Northern California Retail Clerks Union & Food Employers Joint Pension Trust Fund, 763 F.2d at 1068. Although a serious question exists whether plaintiff has a cause of action under section 1103(c), this Court has jurisdiction under 28 U.S.C. § 1331 for the purpose of determining whether plaintiffs cause of action exists. See Award Service, 763 F.2d at 1068; Crown, Cork & Seal Co. v. Teamsters Pension Fund of Philadelphia, 549 F.Supp. 307, 310 (E.D.Pa.1982), aff'd mem., 720 F.2d 661 (3d Cir.1983).

The more difficult question is whether plaintiff, an employer, has a cause of action under section 1103(c)(2)(A), to recover pension contributions mistakenly made to the Fund. Plaintiff contends the language used in section 1103(c)(2)(A), quoted in full above, providing that section 1103(c)(1) “shall not prohibit the return of [a mistaken] contribution” to an employer, creates an affirmative right in the employer to recover mistaken contributions. As an initial matter, it is evident that the statute does not create an express cause of action for the employer. See Award Service, 763 F.2d at 1068; Crown, Cork & Seal, 549 F.Supp. at 311. No such right is granted to employers in section 1103, and section 1132, which provides for civil enforcement of ERISA, does not include employers among the list of parties authorized to bring civil actions to enforce ERISA’s provisions. See 29 U.S.C. § 1132(a) (civil actions may be brought by the Secretary of Labor, or by a participant, beneficiary or fiduciary).

Plaintiff maintains, however, that an implied cause of action exists under section 1103 for return of mistaken contributions. Plaintiff states that the majority of federal courts faced with this issue have found that such a cause of action exists. See Award Service, 763 F.2d at 1068; Teamsters Local 639-Employers Health Trust v. Cassidy Trucking, Inc., 646 F.2d 865, 868 (4th Cir.1981); E.M. Trucks, Inc. v. Central States Southeast & Southwest Areas Pension Plan, 517 F.Supp. 1122, 1124 (D.Minn.1981); cf. Chase v. Trustees of Western Conference of Teamsters Pension Trust Fund, 753 F.2d 744, 749-50 (9th Cir.1985) (participants can sue for return of contributions); Peckham v. Board of Trustees of International Brotherhood of Painters & Allied Trades Union & Industry National Pension Fund, 719 F.2d 1063, 1066 (10th Cir.1983), modified and reaff'd, 724 F.2d 100 (10th Cir.1983) (same); Ethridge v. Masonry Contractors, Inc., 536 Supp. 365, 386 (N.D.Ga.1982) (employer can use mistaken contribution as set-off against claim for unpaid contributions); but see Crown, Cork & Seal, 549 F.Supp. at 311-12 (employers have no cause of action to recover mistaken contributions); Teamster’s Local 348 Health & Welfare Fund v. Kohn Beverage Co., 749 F.2d 315, 320 n. 6 (6th Cir.1984) (same) (dictum), cert. denied, — U.S. -, 105 S.Ct. 2024, 85 L.Ed.2d 305 (1985); Kann v. Keystone Resources, Inc., 575 F.Supp. 1084, 1091 (W.D.Pa.1983) (same); Hardy v. National Kinney of California, Inc., 571 F.Supp. 1214, 1215 (N.D.Cal.1983); R.V. Cloud Co. v. Western Conference of Teamsters Pension Trust Fund, 566 F.Supp. 1426, 1430 (N.D.Cal.1983); but cf. In Re Malone, 39 B.R. 81, 82 (Bankr.E.D.Pa.1984) (employer-debtor has no right to set off overpayments against claim of pension fund-creditor). Because this authority is split and no case has been decided on this issue by this Court or the Third Circuit Court of Appeals, a plenary analysis of an employer’s implied right of action is warranted.

Under Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), a court must consider four factors in deciding whether to recognize that an implied right of action exists in a statute not expressly providing one:

First, is the plaintiff ‘one of the class for whose especial benefit the statute was enacted,’ — that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? And finally, is the cause of action one traditionally relegated to case law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?

Id. at 78, 95 S.Ct. at 2088 (citations omitted). As later decisions have made clear, the heart of this analysis is discerning and following congressional intent. See Daily Income Fund, Inc., v. Fox, 464 U.S. 523, 104 S.Ct. 831, 78 L.Ed.2d 645; Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979); Walck v. American Stock Exchange, Inc., 687 F.2d 778 (3d Cir.1982).

Analysis of these factors demonstrate that Congress did not intend to create a cause of action for employers. First, both ERISA and MPPAA were primarily designed to protect the individual pension rights of participants and beneficiaries of pension plans. See 29 U.S.C. § 1001 (congressional findings and .declaration of policy for ERISA); Joint Explanation of S. 1076; Multiemployer Pensions Plan Amendments Act of 1980, 126 Cong.Rec.S. 10111-13 (daily ed. July 29, 1980) (policy of MPPAA is to protect pension plans the interests of participants and beneficiaries). Plaintiff contends that the 1980 MPPAA amendment to section 1103(c), which broadened the section to allow plans to return mistaken contributions in more situations, means that section 1103(c)(2)(A)(ii) is designed to benefit employers. Although section 1103(c)(2)(A)(ii) does benefit employers because it allows plan administrators to return mistaken contributions, there is no indication, either in the language of the statute or in its legislative history, that this section was added for the especial benefit of employers. See H.Conf.Rep. No. 1280, 93rd Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Ad.News 4639, 5038, 5083 (legislative history of original section 403); 126 Cong.Ree. S 10130 (daily ed. July 29, 1980) (legislative history of MPPAA). Moreover, the statute clearly does not “create a federal right in favor of the plaintiff.” Cort v. Ash, supra. None of the language used in the statute or in the legislative history speaks in terms of rights granted to employers; rather, the statutory language is concerned with fiduciary duties of plan administrators to their beneficiaries and is entirely permissive, i.e., it does not command that mistaken contributions should be returned. See Crown, Cork & Seal, 549 F.Supp. at 314.

Second, there is no indication of legislative intent to create a remedy in favor of employers. As noted above, the statutory language is not the type of language Congress has used to create a right of action. More importantly, the omission of employers among the entities who can sue to enforce section 1103 is a strong indication that Congress did not intend to grant employers a right of action. See 29 U.S.C. § 1132. It is a well-established maxim of statutory construction that the expression of one thing is the exclusion of another. In other parts of ERISA, Congress has specifically included employers, along with participants, beneficiaries, and fiduciaries, in its listing of persons entitled to bring actions to enforce certain ERISA provisions. See, e.g., 29 U.S.C. § 1451(a). Plaintiff’s contention that the omission of employers from section 1132 was a mere oversight in a massive bill is unpersuasive, as this would require the Court to believe that Congress was forgetful twice: first, in 1974, when it passed ERISA, and then in 1980, when it passed MPPAA. It is more likely that Congress’ omission was intentional rather than forgetful.

Third, it is not clear whether creation of a remedy in favor of employers would be consistent with the statutory scheme, which is primarily concerned with the fiscal health of pension funds. On one hand, allowing employers to recover mistaken contributions would take money from pension funds and could threaten their fiscal integrity. See Crown, Cork & Seal, 549 F.Supp. at 312. On the other hand, if employers cannot recover mistaken contributions, they might be less willing to participate in pension plans and may withhold payments when they have any doubt that the payments are required, for fear that those payments could not be recovered. Cf. Chase, 753 F.2d at 750 n. 6 (liberalization of refund provisions may encourage employer participation).

The fourth Cort v. Ash factor — whether this cause of action is traditionally relegated to state law — has no applicability in this statutory context, because ERISA preempts and supersedes all state law relating to pension plans. See 29 U.S.C. § 1144; Murphy v. Heppenstall Co., 635 F.2d 233, 237 (3d Cir.1980), cert. denied, 454 U.S. 1142, 102 S.Ct. 999, 71 L.Ed.2d 293 (1982).

The conclusion compelled by this analysis of the four Cort v. Ash factors is that Congress did not intend to create a right of action for employers to recover mistaken contributions under section 1103(c)(2)(A)(ii). Virtually no support for such a right of action exists in the legislative history. Moreover, the language used by Congress in section 1103(c)(2)(A)(ii) is not language creating a statutory right in employers, especially given that the language appears in a section specifying the fiduciary duties of plan trustees and administrators to participants and beneficiaries. These facts, coupled with the omission of employers in section 1132, demonstrate that no implied right of action exists for employers under section 1103(c)(2)(A)(ii). Plaintiffs claim under that section must be dismissed for failure to state a cause of action.

This holding, however, does not preclude plaintiff from recovery, because plaintiff does have a right of action under the federal common law for unjust enrichment. “In enacting ERISA, Congress authorized the evolution of a federal common law of pension plans.” Murphy v. Heppenstall Co., 635 F.2d at 237; see Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923, 936 (3d Cir.1985); Van Orman v. American Insurance Co., 680 F.2d 301 (3d Cir.1982); Northeast Department ILGWU Health & Welfare Fund, supra, 764 F.2d at 157 (opinion of Becker, J.). Included within this grant of authority is the power, in appropriate circumstances, to order restitution to prevent unjust enrichment. See Van Orman v. American Insurance Co., 680 F.2d at 311-12; Cummings v. Briggs & Stratton Retirement Plan, 606 F.Supp. 659, 663-64 (E.D.Wis.1985). Thus, plaintiff has a cause of action for unjust enrichment under federal common law.

This result is essentially consistent with the cases cited at page 948, supra, finding that a cause of action for return of mistaken payments exists under section 1103(c)(2)(A)(ii). The cause of action recognized by those courts is an equitable action that would rely on the same factors applicable to an unjust enrichment claim. See, e.g., Award Service, 763 F.2d at 1069; Teamsters Local 639-Employers Health Trust v. Cassidy Trucking, Inc., 646 F.2d at 868.

Defendant contends that the recognition of a cause of action in favor of plaintiff under federal common law would contravene Congress’ intent in enacting ERISA and MPPAA and would provide the employer with a remedy not intended by Congress. The short answer to defendant’s contention is that Congress’ intent in enacting ERISA and MPPAA was to preempt state law and authorize the federal court to fill in the interstices of the statutes. An action for unjust enrichment, equitable in nature, and developed in light of the policies of ERISA, is appropriate and “necessary to fill in interstitially or otherwise effectuate the statutory pattern enacted in the large by Congress.” Van Orman v. American Insurance Co., 680 F.2d at 312 (quoting United States v. Little Lake Misere Land Co., 412 U.S. 580, 593, 93 S.Ct. 2389, 2397, 37 L.Ed.2d 187 (1973)). Moreover, the result of the Cort v. Ash analysis used above was not that Congress intended to forbid this cause of action, but only that there is insufficient evidence that Congress intended to provide a remedy under section 1103(c)(2)(A)(ii). A cause of action for unjust enrichment in this situation would not contravene ERISA or the policy of section 1103(c)(2)(A)(ii), because that section recognizes that a return of mistaken contributions to employers is consistent with ERISA.

In its briefs, plaintiff requested summary judgment on its unjust enrichment theory, alleging that no material federal issues exist. However, as plaintiff was forced to concede at oral argument, this action is not ripe for summary judgment under an unjust enrichment theory because material issues of fact do exist, such as the fiscal health of the Fund and the effect restitution would have on the Fund. Accordingly, plaintiff’s motion for summary judgment will be denied on the unjust enrichment theory.

      . For the sake of clarity, statutory sections will be cited according to their codification in Title 29 of the United States Code, rather than according to the original acts.

        . It is doubtful that Hardy and R.V. Cloud are still good law, given the Ninth Circuit’s subsequent decision in Award Service.

      . The Third Circuit’s summary affirmance, without published opinion, of Crown, Cork & Seal, see 720 F.2d 661 (3d Cir.1983), has no precedential value. See Internal Operating Procedures of the Third Circuit Court of Appeals, ch. V, § F, 28 U.S.C.App.

      . To the extent that other courts have held differently, I respectfully disagree with their analyses and conclusions.

      . This Court has jurisdiction under 28 U.S.C. § 1331 over actions arising under federal common law. See Illinois v. City of Milwaukee, 406 U.S. 91, 100, 92 S.Ct. 1385, 1391, 31 L.Ed.2d 712 (1972); Northeast Department ILGWU, 764 F.2d at 156 (opinion of Becker, J.).

      . The existence of a federal common law action for unjust enrichment preempts plaintiff’s claimed state law action. See 29 U.S.C. § 1144(a); Murphy v. Heppenstall Co., 635 F.2d at 237. Accordingly, summary judgment will be granted to defendant on plaintiff’s claim that it has a cause of action, based on Delaware law, for unjust enrichment.


author: HULL, District Judge.

text:
    Dorothy J. TOTTEN, et al. v. UNITED STATES of America.
    No. CIV-4-84-27.
    United States District Court, E.D. Tennessee, Winchester Division.
    Sept. 11, 1985.

      Donal E. Overton and J.D. Lee, Knoxville, Tenn., for plaintiffs.
    Joanne I. Schwartz, Torts Branch, Civ. Div., U.S. Dept, of Justice, Washington, D.C., for defendant.
   MEMORANDUM and ORDER'

HULL, District Judge.

This is a wrongful death action brought under the Federal Tort Claims Act, 28 U.S.C. § 1346(b). Plaintiffs husband, Arthur C. Totten, Jr., was killed in a rocket propellant fire while working at the United States Air Force Arnold Engineering Development Center [Air Force]. Mr. Totten, an employee of Aerojet Strategic Propulsion Company [Aerojet], was engaged in a post-accident clean up operation following an MX2 rocket test failure. Aerojet and several other private companies were under contract with the Air Force to design, fabricate, and manufacture the MX missile.

This action is before the Court on a motion for summary judgment, Rule 56(b), Federal Rules of Civil Procedure, filed by the United States. In support of its motion, the United States contends that it cannot be held liable for the negligence of its independent contractor Aerojet; that it is entitled to the “statutory employer” protection afforded by Tennessee workers compensation laws; that it cannot be held strictly liable on any theory which would suggest it had a “non-delegable” duty regarding the safety of those working with ultra-hazardous materials; and that, in any event, it was performing a discretionary function in regard to the accident and is therefore protected from liability pursuant to 28 U.S.C. § 2680(a). The United States has provided affidavits attesting to the fact that, under the terms of its contract with Aerojet, Aerojet was responsible for the safety and health of its employees; Aerojet supervised the day-to-day performance of its contract; and the United States reserved the right of oversight and inspection of any system developed by Aerojet and the right to terminate the contract in the event of safety violations.

This Court has already agreed that the United States cannot be held liable for the negligence of its independent contractors. United States v. Orleans, 425 U.S. 807, 96 S.Ct. 1971, 48 L.Ed.2d 390 (1976). It would also agree that the mere reservation of a right to inspect in a contract such as the one governing Aerojet’s relationship with the Air Force does not impose on the United States a duty to inspect or control the operations. Gowdy v. United States, 412 F.2d 525 (6th Cir.1969). It also agrees that no form of strict liability for engaging in ultra-hazardous activity can be imposed on the United States under the limited waiver of immunity in the Federal Tort Claims Act. Dalehite v. United States, 346 U.S. 15, 44-45, 73 S.Ct. 956, 972-73, 97 L.Ed. 1427 (1953).

However, the Court does not find that the plaintiffs seek to hold the defendant strictly liable, or that the statutory employer protection is relevant to this action. Plaintiffs seek to hold the defendant liable for actual negligence on the part of Air Force personnel. Apparently, after the MX missile test failure the Air Force convened a committee to investigate the failure. Part of this investigation was to remove “evidence” in the form of the fuel which had spilled in the test silo. Plaintiffs contend that the removal was orchestrated, supervised, and participated in by Air Force personnel. The testimony of Lt. Colonel Richard Rinkel, USAF, indicates that Air Force personnel and people from three contractors (Aerojet, Sverdrup, and Pan Am) worked together “as a team”. [Rinkel, p. 6, Exh. 3 to Doc. 10]. At a series of meetings, the group devised a protocol for the clean up operations and completed a mandatory Project Safety Review Form 7. The actual form prepared is in the record as part of the “J4 Test Cell 27 Nov 82 Accident Investigation”. [Exh. 5 to Doc. 10]. It is evident even to a layman that the people preparing the hazard analysis did not consider fire an important risk. The worst ease hazard was believed to be toxic gas and the form states “recovery will be accomplished without a firetruck and fire personnel on site.” Various Air Force personnel signed the project safety review form indicating “final coordination and approval.” Plaintiffs expert Hyla S. Napadensky, Director of Research Explosion Science and Engineering, IIT Research Institute, Chicago, Illinois, has testified by deposition that the preliminary hazard analysis was not properly performed and failed to follow the specifications of military standard MIL-STD 882A (hazard analysis). She states that obvious fire precautions were not specified in the protocol such as the use of non-static clothing and non-sparking tools. It is the plaintiffs’ contention in this action that the Air Force was required to follow the military standards; that failure to follow them was negligence per se; and that in signing its approval of the clean up protocol, the Air Force failed to exercise proper supervisory control over the project.

It is evident to the Court that the dispositive issue is whether or not the Air Force personnel who approved the clean up operation (with its apparently deficient hazard analysis) were performing a discretionary function. If they were performing a discretionary function, the United States is entitled to the protection of 28 U.S.C. § 2680(a), and must prevail in its summary judgment motion.

The discretionary function exception excludes governmental liability for:

[a]ny claim ... based upon the exercise or performance or failure to exercise or perform a discretionary function or duty on the part of a federal agency or employee of the government, whether or not the discretion involved be abuse.

28 U.S.C. § 2680(a).

The seminal Supreme Court decision construing the discretionary function exception is Dalehite, supra. Dalehite was a Federal Tort Claims Act case arising out of a disastrous explosion of amonium nitrate fertilizer produced at the specifications of, and under the control of, the United States. The Dalehite court said:

The “discretion” protected by the section is not that of the judge — a power to decide within the limits of positive rules of law____ It is the discretion of the executive or the administrator to act according to one’s judgment of the best course____
[It] includes more than the initiation of programs and activities. It also includes determinations made by executives or administrators in establishing plans, specifications or schedules of operations. Where there is room for policy judgment and decision there is discretion.

346 U.S. at 34, 35-36, 73 S.Ct. at 967-68. In Dalehite, much as in the case at bar, ultra-hazardous materials were being handled and the government might well have done further experimentation concerning the safety of the product and made a plan for handling possible explosions. In addition, it should have better regulated the storage and shipping of the fertilizer. These acts of poor judgment were protected from liability by the discretionary function exception of 28 U.S.C. § 2680(a).

In a much more recent decision, United States v. Varig Airlines, 467 U.S. -, 104 S.Ct. 2755, 81 L.Ed.2d 660 (1984), the Federal Aviation Administration had negligently certified an aircraft design as safe despite clear violations of governmental fire protection standards. In addition, it certified for installation a cabin heater that was in violation of FAA safety regulations. Even in this situation, where arguably an inspector has no “discretion” to violate a federal regulation, the United States was found to be protected from liability by Section 2680(a). The Varig court wrote:

When an agency determines the extent to which it will supervise the safety procedures of private individuals, it is exercising discretionary regulatory authority of the most basic kind. Decisions as to the manner of enforcing regulations directly affect the feasibility and practicality of the Government’s regulatory program; such decisions require the agency to establish priorities for the accomplishment of its policy objectives by balancing the objectives sought to be obtained against such practical considerations as staffing and funding____ Judicial intervention in such decision-making through private tort suits would require the courts to “second-guess” the political, social, and economic judgments of an agency exercising its regulatory function. It was precisely this sort of judicial intervention in policymaking that the discretionary function exception was designed to prevent.

104 S.Ct. at 2768.

In the case at issue, it appears that Aerojet prepared a plan for the removal of the rocket propellant which did not have the requisite hazard analysis and did not comply with military safety regulations. Air Force officers approved the plan and signed the Form 7 protocol. These unfortunate decisions appear sufficiently analogous to the negligent decisions in Dalehite and Varig to mandate a ruling that Section 2680(a) protects the United States from liability in this case as well. The mere fact that controlling military safety regulations were not followed does not, of itself, give rise to a cause of action in tort and while this may be evidence of negligence per se, the discretionary function exception of Section 2680(a) protects the United States from liability even when negligence can be proved.

Accordingly, it is ORDERED that the motion of the United States of America for summary judgment, Rule 56(b), Federal Rules of Civil Procedure, is hereby GRANTED, and this action is DISMISSED.