Fiduciary Responsibility
Court Approves Class Action Settlement In Dispute Over Transfer of Funds to Union The U.S. District Court for the Southern District of New York approved March 27 a partial settlement of a class action by International Ladies Garment Workers' Union (ILGWU) death benefit fund participants who alleged the union violated its fiduciary duties when it transferred $77.5 million of the fund's assets to the union (Banyai v. Mazur, S.D.N.Y., No. 00 Civ. 9806 (SHS), 3/27/07). The ILGWU death benefit fund was established in 1937 and included language prohibiting any withdrawals from the fund except for benefits and administrative costs. In 1976, an amendment was added to the ILGWU constitution that permitted termination of the fund by the union's general executive board. In 1997, the ILGWU's general executive board terminated the death benefit fund and transferred the bulk of the fund's assets to a new death benefit fund. In addition, the board transferred $77.5 million of the fund's actuarial surplus to the union itself and of the $77.5 million, $12.5 million was transferred to the 21st Century ILGWU Heritage Fund, a not-for-profit corporation. Participants and beneficiaries of the original death benefit fund brought a class action against the union, the new death benefit fund, and the 21st Century ILGWU Heritage Fund, alleging that the termination of the original fund violated the Employee Retirement Income Security Act. The district court certified the lawsuit as a class action in January 2002 (14 PBD, 1/22/02; 29 BPR 325, 1/29/02; 27 EBC 1444). Settlement's Terms After the case was certified as a class action, a partial settlement was reached. The partial settlement, as set forth by the district court in its most recent decision, provides that $59.5 million of the $77.5 million that was transferred out of the original death benefit fund will remain the union's money. According to Judge Sidney H. Stein, in exchange for the plaintiff participants and beneficiaries giving up their right to seek a recovery from the settling defendants on behalf of the fund of all or any part of the $77.5 million that was transferred from the original death benefit fund, beneficiaries of fund participants who died or die after Dec. 1, 2002, will receive an initial benefit increase expected to be approximately $825, which is an increase of 33 percent over the current death benefit. The settlement further provides that the majority of any newly developed surplus over the next seven years will be used to provide future benefit increases. In addition, the settlement calls for the participant population of the death benefit fund to be "frozen" to assure that benefits are not diluted by the inclusion of new participants, the court said. The settlement also provides that excess assets will revert to the union and if the death benefit fund has assets in excess of 110 percent of the actuarial present value of benefits after the seventh anniversary of the settlement agreement's effective date, those excess funds will then revert to the union. In addition, the settlement requires the fiduciary liability insurance carrier for the fund's trustees to make a $2 million payment, of which at least $1 million will be transferred to the death benefit fund. According to the court, the settlement preserves the right of the class members to proceed against the Heritage Fund for restitution of the $12.5 million transferred to it, with the assurance that any funds recovered for the death benefit fund will be dedicated to future benefit increases for the class and will neither be taken into account when determining actuarial surplus nor revert to the union. Settlement Is Superior to Other Relief In approving the partial settlement, the court noted that even if the plaintiffs were to prevail at trial, they would not be entitled to require an increase in benefits and therefore would obtain relief pursuant to the settlement that is potentially superior to any relief that a victory on the merits would provide. The court also noted that nearly 100,000 class members received notice of the proposed settlement and only 12 class members objected, which indicated that the class as a whole reacted favorably to the proposed settlement. The court also noted that if the case were to proceed to trial, the plaintiffs' theory of liability would depend in significant part on whether the initial termination of the death benefit fund was proper, and even if they proved the termination was improper they would not be entitled to an increase in their benefits, as they will receive under the settlement. The participants were represented by Marc I. Machiz of Cohen, Milstein, Hausfeld & Toll, Philadelphia; and David Steven Preminger of Rosen Preminger & Bloom, New York. The union and other defendants were represented by Ronald E. Richman and Holly Hexter Weiss of Schulte Roth & Zabel, New York. David G. Samuels of Perlman & Perlman, New York, represented the Heritage Fund. The full text of the opinion can be found at http://pub.bna.com/pbd/00civ9806.pdfBACK TO CASE PAGE |
