No ERISA Recovery on Unspecific Property Participant Loan Default: Court

>The US District Court for the Eastern District of Pennsylvania, in denying the fund’s motion for default judgment, determined it lacked subject matter jurisdiction over the action because the fund failed to trace the borrowed funds to a particular property within the participant’s possession.   Therefore, the court found, the remedy sought by the fund did not fall under ERISA Section 502(a)(3), which limits remedies to those seeking “appropriate equitable relief,” according to Washington-based legal publisher BNA.

“While I recognize the difficulties presented to a litigant attempting to trace the flow of monies without the benefit of discovery or even an answer from the opposing party, there is not so much as an allegation in this case that the [participant] might still have the particular funds or any property traceable thereto,” Judge Louis H Pollak said.  

The court also rejected the fund’s argument that because ERISA governs plan loans, ERISA provided the fund with a remedy.

Fund Dollars

>The Carpenters Pension and Annuity Fund of Philadelphia and Vicinity brought the lawsuit against Derrick and Anna Banks after they defaulted on a $22,000 fund loan they took for education expenses. When the participants failed to make an appearance in the fund’s action, the fund petitioned the court for a default judgment order.

>Although the fund characterized its action as seeking to impose a constructive trust over the $22,000 loan, the fund failed to identify the location of the funds.   Thus, the court determined placing a constructive trust over the borrowed funds pursuant to ERISA was possible only if the funds were traceable. Otherwise, the relief sought by the fund was legal rather than equitable, and only equitable relief is available under ERISA Section 502(a)(3).

The case is Carpenters Pension and Annuity Fund of Philadelphia and Vicinity v. Banks, E.D. Pa., No. 02-4545, 7/18/03.