United States Court of Appeals
For the First Circuit
No. 07-1797
INDIANAPOLIS LIFE INSURANCE COMPANY,
Plaintiff,
v.
ROSALIND HERMAN, TRUSTEE, FINANCIAL RESOURCES NETWORK, INC.
PROFIT SHARING PLAN AND TRUST; FINANCIAL RESOURCES NETWORK, INC.
PROFIT SHARING PLAN AND TRUST,
Defendants, Cross-Claim Defendants, Appellants,
RUDY K. MEISELMAN, M.D.,
Defendant, Cross-Claim Plaintiff, Appellee,
GREGG D. CAPLITZ; HOPE E. MEISELMAN,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Boudin, Chief Judge,
Campbell and Stahl, Senior Circuit Judges.
Robert D. Cohan with whom Cohan Rasnick Myerson LLP was on
brief for appellants.
Charles P. Kazarian, P.C. for appellee.
February 13, 2008
BOUDIN, Chief Judge. In the district court, the
plaintiff (now appellee) Rudy Meiselman obtained a default judgment
against defendant (now appellant) Rosalind Herman--trustee of the
Financial Resources Network Profit Sharing Plan and Trust ("FRN
plan"). The dispute on this appeal is whether Herman, named in
some court papers as trustee and in others not, is liable only in
her trustee capacity or whether she is personally liable to
Meiselman.
Financial Resources Network, Inc. ("FRNI") is apparently
a Massachusetts corporation engaged in business as a registered
investment advisor. During the pertinent period, Herman served as
president, treasurer, secretary and a director of the company;
Meiselman has alleged that she is the sole shareholder but that
Gregg Caplitz is an undisclosed principal who controls the company.
FRNI administers a profit sharing plan for its employees governed
by the Employee Retirement Income Security Act (ERISA), 26 U.S.C §
401(k) (2000); 29 U.S.C. § 1001 (2000) et seq., and Herman acted as
plan administrator and sole trustee.
Meiselman, now living in Florida, is a retired doctor who
in 2002 became a technical analyst for FRNI. In joining the
company, he elected to participate in the pension plan, directed
that much of his salary be contributed to the plan and executed a
tax-free rollover of his pre-existing retirement funds--over $11
million--into the plan. At the end of June 2004, Meiselman
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directed Herman to transfer all the assets in his plan account to
a new IRA account that he had established elsewhere.
In November 2004, Indianapolis Life Insurance Company
("Indianapolis Life") brought a law suit in the Massachusetts
federal district court against "Rosalyn Herman, Trustee," FRN Trust
(but not FRNI), Caplitz and Meiselman and his wife. The complaint
sought to rescind life insurance policies on the lives of Meiselman
and his wife (designating the FRN plan as beneficiary) and to
recover a large agent's commission paid to Caplitz. The complaint
alleged that Herman had proceeded with the applications despite
Meiselman's objection and without disclosing his failing health.
Meiselman answered the complaint (endorsing rescission),
and "cross-claimed" against FRNI (although it was not a party),
Herman and Caplitz. The cross-complaint sought substantial damages
growing out of alleged derelictions by the cross-claim defendants
in misappropriating Meiselman's funds and failing to execute his
earlier directive to transfer his plan assets. The claims were
based on various theories including breach of Meiselman's
employment contract and pension plan rights, breach of fiduciary
duty under ERISA and conversion of property.
The cross-claim defendants never answered Meiselman's
complaint, a default was entered on June 28, 2005, and on August
18, the district court granted Meiselman's motion for default
judgment. On January 6, 2006, Meiselman sought entry of a separate
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final judgment in the amount of $938,640.14, Fed. R. Civ. P. 54(b),
while on January 10, Herman and her co-defendants sought relief
from the default judgment, Fed. R. Civ. P. 60(b), on account of
their then-counsel's allegedly excusable neglect in failing to
answer. The district court held a hearing on January 25, 2006,
refused to undo the default, and the following day granted
Indianapolis Life's motion for summary judgment. On January 27,
the court entered a final judgment on all the claims in the case,
including Meiselman's cross-claim. On the cross-claim, the
judgment was for $938,640.14 plus costs and interest "[f]or
Crossclaim Plaintiff Rudy Meiselman against Crossclaim defendant[]
Rosalind Herman, Trustee, Financial Resources Network, Inc., Profit
Sharing Plan and Trust."
Herman, the company, the plan and Caplitz sought review
of the final judgment in this court, challenging the grant of
summary judgment to Indianapolis Life and the denial of their
request to undo the default. In a per curiam decision, this court
upheld both of the district court's actions. Indianapolis Life
Ins. Co. v. Herman, 204 Fed. Appx. 908, 910 (1st Cir. 2006)
("Meiselman I"). That final judgment is controlling in this case;
the present appeal concerns its interpretation and Meiselman's
efforts to enforce it.
On March 6, 2006, Meiselman obtained an execution from
the clerk of the district court for $1,046,955.23 (plus costs and
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post-judgment interest) against "Gregg D. Caplitz, Rosalind Herman,
and Financial Resources Network, Inc.," jointly and severally.
Meiselman noticed Herman's deposition and sought production of an
assortment of her personal financial documents. When Herman failed
to appear, a magistrate judge held a hearing on October 18, 2006,
and found Herman in contempt. At a subsequent show cause hearing
on November 20, Herman agreed to produce the requested documents
and to appear for a deposition.
On December 15, 2006, Herman filed a motion to stay
enforcement of and correct the execution, arguing that the
execution made her personally liable whereas she was actually
liable only in her capacity as trustee. Opposing the motion,
Meiselman asked the district court to amend the judgment to remove
the trustee designation following Herman's name. At a hearing on
December 21, the district court denied Herman's motion without
prejudice, instructed her to purge herself of the contempt order
before filing further motions, and denied Meiselman's motion as
moot.
On March 6, 2007--after Herman had been deposed and had
produced certain documents--the contempt order was lifted. Herman
then renewed her motion to stay enforcement of and correct the
execution, and Meiselman renewed his motion to amend the judgment.
On May 4, 2007, the district court issued an order without opinion
denying Herman's motion, clearing the way--it appears--for
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Meiselman to proceed against Herman's personal assets in
satisfaction of the judgment.
Herman has now filed a timely appeal with this court
arguing that the district court erred in not amending the execution
to conform to the judgment; she asserts that the cross-complaint
and resulting judgment made her liable only in her capacity as
trustee of the FRN plan. Meiselman defends the district court's
orders. We are now left to sort out this sorry tangle. The
standard of review (Herman says de novo; Meiselman, abuse of
discretion) depends on the particular issue. See Roger Edwards,
LLC v. Fiddes & Sons Ltd., 427 F.3d 129, 132 (1st Cir. 2005).
The sole order under review, evidenced only by a docket
entry, was entered on May 4, 2007, denying the "emergency motion"
by Herman and the plan to set aside and correct the execution as
not conforming to the judgment; the motion also sought to set aside
an attachment secured against Herman's residence and an order
against Meiselman preventing him from "proceeding against Herman's
personal assets to collect the Original Judgment" entered January
27, 2006, and upheld in Meiselman I.
Herman's main and best argument is that she was never a
party to the case in her personal capacity and that the judgment
itself ran against her only in her capacity as trustee. If so, the
execution procured by Meiselman, seemingly effective against Herman
in her personal capacity, would be inconsistent with the judgment.
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Ordinarily, a money judgment against an individual in his official
capacity runs only against the entity's assets.1
The district court has inherent power to correct an
execution at odds with the supporting judgment; this does not, as
some of the briefing suggests, depend on state law. The judgment
is that of the district court and while state procedures can be
used for collection, Fed. R. Civ. P. 69(a), a discrepancy between
two directives of the district court--judgment and execution--would
be a matter subject to the court's inherent powers. See Patton v.
Sec'y of Dep't of Health & Human Servs., 25 F.3d 1021, 1027 (Fed.
Cir. 1994); Fed. R. Civ. P. 60(a).
Here, the district court gave no reason for its denial of
Herman's motion, but, in opposing the motion, Meiselman had argued
that the cross-complaint sought to impose liability on Herman in
her personal capacity and that the judgment should be read
conformably. The district judge, we can assume, accepted this
view. No other basis for denying the motion was urged. And such
an interpretation explains why the district judge found it
1
See Kentucky v. Graham, 473 U.S. 159, 166 (1985) ("[A]
plaintiff seeking to recover on a damages judgment in an official-
capacity suit must look to the government entity itself."); First
Union Nat'l Bank ex rel. Se. Timber Leasing Statutory Trust v.
Pictet Overseas Trust Corp., 351 F.3d 810, 813-14 & n.2 (8th Cir.
2003) (noting that if claim was stated against trustee in its
representative capacity, recovery would only be had from the trust
assets); Manginaro v. Welfare Fund of Local 771, I.A.T.S.E., 21 F.
Supp. 2d 284, 301 (S.D.N.Y. 1998) ("Although a trustee can be sued
in his official capacity, such suits are treated as suits against
the plan.").
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unnecessary to rule on Meiselman's back-up motion to amend the
judgment itself.
At first blush, such a reading of the cross-complaint and
judgment might seem surprising: the case caption in the district
court throughout the case described the first defendant as
"Rosalind Herman, Trustee," and the pertinent final paragraph of
the judgment awarded the money judgment to Meiselman "against . .
. Rosalind Herman, Trustee" (along with the other two cross-claim
defendants). Nor was she re-served in her individual capacity.2
But the case caption is not conclusive and the judgment is subject
to more than one reading.
The caption started with the original complaint by
Indianapolis Life and, so far as Herman was a defendant in that
aspect of the case, she was certainly sued by Indianapolis Life in
her capacity as trustee. The main relief sought against her was to
rescind policies of which the plan was beneficiary; monetary relief
2
Herman also argues that judgment could not have entered
against her personally because she was only made a party to the
action, and accordingly was only served, in her capacity as
trustee. This is, in substance, a claim of insufficient service of
process, or relatedly, lack of personal jurisdiction over her in
her personal capacity. See generally United Elec., Radio & Mach.
Workers v. 163 Pleasant St. Corp., 960 F.2d 1080, 1085-86 (1st Cir.
1992). In fact, the return of service merely lists Herman as the
recipient without referring to her capacity. In any event, Herman
waived any such defense by failing to raise it even in her Rule
60(b) motion following entry of default judgment. In Re Worldwide
Web Sys., Inc., 328 F.3d 1291, 1300-01 (11th Cir. 2003); Swaim v.
Moltan Co., 73 F.3d 711, 718 (7th Cir.), cert. denied sub nom.
Gurley v. Swaim, 517 U.S. 1244 (1996).
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was sought only against Caplitz for the large agent's commission he
had received. So the principal question is how the cross-claim and
the judgment entered upon it should be read.
Although the cross-claim caption also referred to Herman
as "trustee," as does the later judgment, in federal cases the
court examines the substance of the complaint and the parties'
litigation conduct to determine the capacity in which a defendant
was sued.3 This approach eschews mechanical reliance on the form
of the caption or individual designation and is consistent with the
practical approach to construction of pleadings and orders taken by
the Federal Rules. See Duckworth v. Franzen, 780 F.2d 645, 649-50
(7th Cir. 1985), cert. denied, 479 U.S. 816 (1986); Fed. R. Civ. P.
15(b).
Meiselman stresses that in identifying parties to the
cross-claim, the cross-complaint at the outset described Herman as
"a natural person," adding thereafter her business affiliations;
but this also proves little: she would be a natural person even if
she were sued solely in her capacity as trustee. What matters
most, in our view, is the substance of the cross-complaint so far
3
See Powell v. Alexander, 391 F.3d 1, 22 (1st Cir. 2004); see
also Shockley v. Jones, 823 F.2d 1068, 1071 (7th Cir. 1987)
(determining whether defendant in section 1983 action was sued in
personal or official capacity by reviewing pleadings and litigation
conduct); Rice v. Hamilton Air Force Base Commissary, 720 F.2d
1082, 1085 (9th Cir. 1983) (determining whether defendant in
employment discrimination action was properly a party to the case
by reviewing allegations in complaint).
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as it sought to impose liability on Herman, and the course of
proceedings so far as it casts any light upon the matter.
The factual recitations of the complaint, preceding the
claims themselves, make clear that it sought to recover damages as
to Herman because she had refused his instructions to transfer his
plan assets to an independent IRA, had caused almost $50,000 to be
diverted from his account to pay counsel to defend her and the
company against Meiselman in litigation, had withheld salary due to
him, had improperly liquidated his investments and had charged him
an improper management fee.
Apart from a count seeking declaratory relief, the counts
--all naming Herman along with differing other defendants--were for
breach of employment contract, breach of fiduciary duty under
ERISA, breach of the plan agreement and conversion of Meiselman's
account funds. Both breach of contract claims probably could run
only against the company or the plan; but breach of fiduciary duty
and conversion claims were certainly potentially available against
Herman in her personal capacity. See First Union Nat'l Bank ex
rel. Se. Timber Leasing Statutory Trust v. Pictet Overseas Trust
Corp., 351 F.3d 810, 814-15 (8th Cir. 2003).
Under ERISA, a plan trustee can be held personally liable
under certain circumstances for breach of fiduciary duty, 29 U.S.C.
§ 1109(a); Mertens v. Hewitt Assocs., 508 U.S. 248, 252 (1993), and
a conversion of property claim would lie against the converter
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personally, even if the action was purportedly taken in a corporate
or official capacity. See, e.g., Tubos de Acero de Mexico, S.A. v.
Am. Int'l Inv. Corp., 292 F.3d 471, 479 (5th Cir. 2002). Much of
Herman's brief is devoted to arguing on the merits that liability
under ERISA could not be imposed on Herman personally and that
state law claims against her would be preempted by ERISA; but such
objections were forfeited when Herman defaulted. See Saks v.
Franklin Covey Co., 316 F.3d 337, 349 (2d Cir. 2003).4
A reasonable litigant, advised by competent counsel,
would have had good reason to fear that personal liability might be
imposed under some of the theories in the complaint. Further, the
complaint made clear that Herman was being charged in some measure
with personal dishonesty (for example, that Herman had charged the
account for non-existent services (¶ 19), and that she and Caplitz
were "helping themselves to Meiselman's money to defend a legal
4
Generally, an ERISA fiduciary can only be liable to the plan
and not an individual beneficiary for a breach of her duty. See
Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 144 (1985)
(trustee's liability is to the plan rather than the individual
beneficiary). But see Ream v. Frey, 107 F.3d 147, 152-53 (3d Cir.
1997) (allowing individual ERISA beneficiary to seek relief from
plan fiduciary under 29 U.S.C. § 1132(a)(3) where plan was no
longer functioning). The Supreme Court recently heard arguments in
a case concerning the scope of relief available under 29 U.S.C. §§
1109, 1132. LaRue v. DeWolff, Boberg & Assocs., Inc., No. 06-856
(argued Nov. 26, 2007). Regardless of the precise scope of section
1109, any substantive defense to Meiselman's ERISA claim has been
forfeited.
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action they instigated by their refusal to carry out their
fiduciary obligations" (¶ 29)).5
Thus, when Herman failed to answer the complaint or to
timely oppose the order of default or the entry of default
judgment, she was taking a substantial risk as to personal
liability. Nor, it appears, did she oppose the showing of
Meiselman's damages by calculations made in his affidavit. So it
is of little use to complain now that the damages somehow swelled
from the $70,000 or so identified in the cross-complaint--
professedly an incomplete estimate--to the much larger figure
contained in the affidavits.
This brings us to the final judgment. It did refer to
Herman as "trustee"--curiously the earlier notice of default did
not--but it rested upon a complaint that seemingly sought in some
measure to hold her personally liable. In March 2006, the
execution was secured by Meiselman, making no mention of Herman's
status and the attempt began to pursue Herman personally. Yet
remarkably she took no action to clarify her status under the
judgment until December 2006; and, because she placed herself in
contempt, her present motion could not be filed until a year after
the original execution had issued.
5
Ultimately, Meiselman's damages affidavit attributed
$824,467.58 of his $938,640.14 in damages (accruing interest later
raised this figure) to lost capital appreciation owing to Herman's
mishandling of his funds, allegedly in breach of her fiduciary duty
to him.
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It would perhaps have made matters clearer if the
district judge had stated that he read the cross-complaint as
threatening Herman with personal liability at least as to some of
the claims; but this is a determination of law and we would so
construe the complaint in any event. See U.S. Liab. Ins. Co. v.
Bourbeau, 49 F.3d 786, 787 (1st Cir. 1995). It might also have
been better to amend the judgment accordingly; but treating the
"trustee" reference as surplusage is not without precedent.
Gardiner v. Rogers, 166 N.E. 763, 764 (Mass. 1929).
One could ague that the judgment, read in light of the
complaint, could include amounts for which Herman is liable
personally and other amounts for which she is liable only in her
corporate capacity, i.e., money that should come from the company
or the plan--assuming it has any other assets. Perhaps a way could
be found, through a remand and further proceedings, to effect an
allocation which would appear in a judgment accurately reflecting
the substance of the claims on which Herman had defaulted.
But Herman has not sought such a solution either in the
district court or here, even as an alternative disposition.6
Further, any allocation would be complicated, if not made
6
Nor is it clear, based on the affidavit specifying the
damages, that an allocation would greatly assist Herman. The only
set of damages identified in the affidavit that might readily be
allocated only to a different entity are those based on Meiselman's
$23,000 claim for breach of his employment contract and, for
reasons unnecessary to develop, even this allocation might not be
clear cut.
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impossible, by Herman's own failure to answer the complaint and to
engage in the litigation that would have sorted out her liabilities
and clarified which were personal and which were not. This
default, and the delays in raising the present issue, make Herman
or her counsel largely the author of her misfortune.
Justice be done though the heavens fall ("Fiat justitia,
ruat coelum") is an admirable maxim, but in practice it is hedged
by requirements that litigants make reasonable efforts to answer
complaints, read documents served on them, obey court orders and
seek corrections in a timely manner. If what happened here is due
not to Herman but her former counsel, that is a matter to be
settled between them.
Affirmed.
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