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UFCW Local 56 Health and Welfare Fund v. Brandywine Operating Partnership, L.P..

05-2435 (U.S. Dist. Ct. D. N.J. 2005) (Unpublished)

LEASES; ERISA—A landlord with no prior relationship to an pension plan tenant is not an “interested party” under ERISA regulations that bar such a plan from leasing from an “interested party” and doesn’t become one just because, by reason of the lease, it then furnishes services to the plan, a characteristic that, if present before the leasing transaction, would have constituted a disqualification.

A union welfare fund was a tenant under an office lease and sought to be released from the lease. It filed suit alleging that the “Trustee who signed the lease did not have the consent or authorization to execute the agreement on the Fund’s behalf” and that the lease transaction was a prohibited transaction under ERISA. It claimed that as a result of these two contentions, the landlord had been unjustly enriched. In essence, it sought a declaration “whether the lease is void and unenforceable as a result of ERISA, and whether the lease is valid and enforceable against the Fund in the absence of approval by the Fund’s Board of Trustees.” ERISA “categorically bar[s] certain transactions ‘likely to injure the pension plan.’ ... Specifically, ERISA identifies certain prohibited transactions including: ‘(A) sale or exchange, or leasing, of any property between the plan and a party in interest; ... (C) furnishing of goods, services, or facilities between the plan and a party in interest; and (D) transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan.’” This gave rise to the question as to whether the landlord was a “party in interest” under ERISA. One of the definitions of a “party in interest” includes “a person providing services to [the] plan.” Here, the tenant-fund was asserting that “[a]s a result of the Lease, [the landlord and others] are parties in interest to the Fund.” It did not allege any prior relationship. “Rather, it argue[d] that [the landlord] became a party in interest ‘when the lease was executed because it then provided services to the Fund.’” In essence, it claimed that the services consisted of the landlord’s provision of office space to the Fund. The Court rejected that logic which was essentially an argument “that the alleged prohibited transaction itself [made the landlord] a party in interest, and therefore the transaction [was] void under ERISA.” The purpose of ERISA’s prohibitions is to prevent plan fiduciaries from “engaging in certain types of transactions that had been used in the past to benefit other parties at the expense of the plan’s participants and beneficiaries.” According to the Court, the “prohibited transaction rules seek to prevent ‘self-dealing’ and ‘sweetheart deals’ that carry a high risk of ‘corruption and loss of plan assets.’” In light of that understanding, the Court refused to interpret “party in interest” to include the landlord, “an independent lessor of office space with no other relationship to the fund.” It ruled that “[s]uch an arms-length transaction does not carry the risk of self-dealing that Congress sought to avoid. [The landlord’s] leasing of office space to the Fund simply [was] not a transaction inherently ‘likely to injure the pension plan.’” The Court’s decision was based on its finding that under the relevant statute, “a party must have a relationship with the pension plan that preexists, or is independent of, the relationship created by the allegedly prohibited transaction.” The rule otherwise would “render every party who contracts with [the pension plan] a party in interest.”

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