Union Trust Funds Accept $29.9-Million to Settle Suit
Two Los Angeles-based Carpenters Union trust funds announced Monday that they have received $29.9 million to settle a lawsuit brought against their former trustees, attorneys, investment advisers and contracting firms.
Monday’s announcement stemmed from a federal court lawsuit filed in 1986. The suit charged a host of defendants with operating the trusts to benefit themselves and causing the trusts to lose more than $50 million because of imprudent and legally prohibited loans made on construction projects in Southern California between 1977 and 1984.
Six of the original defendants are parties to the settlement and are paying the settlement.
“The settlement is one of the largest nationwide, and perhaps the largest ever in California, of an action brought under the Federal Employee Retirement Income Security Act,” said Dennis Ganz, Los Angeles-area director of pension and welfare benefits for the U.S. Department of Labor.
The trusts provide retirement and health benefits for thousands of union carpenters in the 11-county Southern California area. The Carpenters Pension Trust alone has about $900 million in assets.
The suit involved 10 California construction projects. According to court documents, eight of the projects were awarded to Moran Construction Co., headed by John W. Bernard, one of the trustees of the trusts.
Thomas J. Ready, the lead attorney for the plaintiffs, asserted that awarding a construction project to a company run by one of the trust fund’s trustees constituted an inherent conflict of interest. He said that under procedures adopted by new trustees, this no longer could happen.
Bernard and the other defendants admitted no wrongdoing in the settlement.
The suit claimed that Bernard, as a trustee, illegally influenced the trusts to make loans to developers on projects in which his Alhambra-based firm would act as general contractor. Bernard was the president of Moran for many years.
“Bernard remains firmly convinced he did not breach any fiduciary obligations,” said his lawyer, Dennis Kinnaird. “It is unfortunate that the suit was brought; it was politically motivated.”
He noted that Bernard had paid out no money to settle the case. Rather, the insurance company representing the former trustees of the pension trust paid $9.5 million of a $10-million policy as their part of the settlement.
The remaining share of the settlement came from the insurers of Cox, Castle & Nicholson, the Century City law firm that was counsel to the pension trustees. Cox, Castle & Nicholson’s insurers paid $14.5 million of a $15-million policy, according to court documents. Robert Winslow, the lawyer who represented the law firm in the case, said he would make no comment on the settlement.
Remaining Portion
The remaining $5.9 million came primarily from several other insurance companies with policies covering other defendants.
Originally, there were more than three dozen defendants in the case, including convicted stock swindler Ivan Boesky. Ultimately, however, he was not liable in this case.
The plaintiffs originally questioned 27 transactions but ultimately based their suit on 10 loans that they contended had been improperly made.
“Several of the properties involved in the suit have been the subject of foreclosures, receiverships and bankruptcies, and some of the loans to the developers are currently in arrears,” Ready said.
Several of the transactions were simply imprudent, he said in a court document filed in connection with the settlement.
”. . . The loans were economically unsound since they were made without adequate security on poorly planned construction projects to developers with poor or unproven track records, frequently without sufficient return given the risks of the investments,” Ready’s brief said.
Shopping Center
Among the transactions involved was a $17.6-million loan to a shopping center project called West Oaks in Westlake Village.
According to court documents, “the developer, a Bel-Air surgeon-turned-developer, had no substantial track record and the shopping center was poorly planned. . . . The basic design of the project was so poorly conceived that the current owners of the property have been required to tear down significant portions of the center and rebuild it in a more useful configuration.”
Douglas J. McCarron, secretary-treasurer of the Los Angeles County District Council of Carpenters, said he began to suspect that something was amiss shortly after becoming a trustee late in 1984. In late 1985 and early 1986, he and other trustees learned that $130 million in loans were delinquent, 70% of which were on Moran-built projects. In August, 1986, they decided to sue.
Ready said the settlement was sound because taking the case to trial would have been long and costly. He and two of the current trustees said the trust funds had not suffered any out-of-pocket losses. However, they acknowledged that trusts had lost potential earnings and the full extent of those losses will not be known for years.
Major Losses
“The trusts’ estimated major losses were based on below-market interest, missed or late payments for construction loans and permanent loans and on the poor investment quality of the loans involved,” said Ronald N. Tutor, president of Sylmar-based Tutor-Saliba Corp. and co-chair of the Carpenters Pension Trust, which is administered by six management and six union trustees. “We’ll be suffering from this chain of events for years to come.”
Ganz of the Labor Department said the department had investigated the situation and “determined that proper legal action was being pursued in the case by private parties.”
“That’s why we didn’t pursue our own action in the matter,” Ganz said.
He said the department will review the settlement documents to determine whether government action is warranted.
The settlement was approved by U.S. District Judge Manuel Real on Jan. 9. Ready said the trustees had delayed announcing the settlement until Monday “to make sure all the checks had cleared.”
