contributions must be made on behalf of all employees in order for an employer to qualify for Fund participation. Lasky Affidavit, Exhibit D, P5. The requirement that an employer make contributions for all of its employees is neither arbitrary nor improperly motivated. It protects the fiscal integrity of the Fund from employers who would save money by selectively enrolling only those employees with greater need for health insurance. Such practices would quickly erode the actuarial integrity of the Fund and might force the Fund into insolvency.
Article II § 3 of the Trust Agreement says that the trustees can establish rules to effectuate the purposes of the Fund, the primary purpose being to provide health insurance and benefits to its participants. The Fund clearly envisions providing such coverage over the long-term and a rule requiring contributions for all employees helps insure the Fund's long-term survival. It is the trustees' duty to avoid substantial adverse actuarial and economic impact on the Fund.
After DeFaber notified the Fund of the discontinuation of 2 of its 3 enrolled employees, the Fund requested information in order to assess the plaintiff's continued membership in the Fund. During the review process, the Fund was led to question the eligibility of the DeFaber group as a whole. It is undisputed that the Fund requested tax statements and wage records of DeFaber and none were produced. At oral argument, plaintiff argued that no tax records were produced because the Fund had requested a particular tax form that DeFaber did not use for his employees. DeFaber stated that since the Fund did not specifically request his 1099 tax forms he did not provide them. The Fund, in response, noted that it had requested records documenting DeFaber's employees from both DeFaber and plaintiff on several occasions after DeFaber sent notification of withdrawal from the Fund.
At Board of Trustees meeting DeFaber described his employees as independent contractors (plaintiff admits his status). At oral argument, however, DeFaber maintained that contributions were made for all persons like plaintiff who gathered leads for DeFaber's private investigation business. Due to DeFaber's and plaintiff's inability to show that the DeFaber group had ever met the eligibility requirements, the trustees concluded that selective enrollment had occurred and upheld the Plan Administrator's termination of their participation. Consequently the Fund refused to process plaintiff's medical claims.
A problematic issue arises when we examine the reasons given by the trustees for their termination decision. The Plan Administrator initially suspended plaintiff's benefits coverage because plaintiff failed to provide evidence of his or the DeFaber group's eligibility for participation in the Fund. However, on appeal, the trustees' affirmance of this decision was somewhat ambiguous. In their February 28 letter, the trustees upheld the Plan Administrator's denial of plaintiff's claims because the DeFaber group was disqualified for failure to make contributions on behalf of all DeFaber employees, a fact that the trustees stated Mr. DeFaber had admitted at the Board meeting.
It is unclear whether this referred to a failure to contribute for all employees from the beginning of the group's participation or at the point DeFaber notified the Fund that 2 of its 3 enrolled employees were discontinuing participation effective February 1, 1991. The minutes of the Board meeting seem to indicate that the trustees were primarily concerned with the DeFaber notification of January 10th and its inference of selective enrollment.
Plaintiff argues that the Board minutes demonstrate that his termination was arbitrary in that the trustees wrongly concluded that contributions had not been made for all DeFaber employees in January 1991. The court notes that it is unclear whether the brief paragraph synopsis represents a complete record of the eligibility concerns addressed by the Board at the February 12th meeting. However, this question does not impact on our resolution of this case.
Considering the evidence that existed at the Board meeting and the reasons originally offered by the Plan Administrator, we cannot say that the trustees' affirmance of the denial of benefits rises to the level of arbitrary action or evinces bad faith.
The Plan Administrator terminated plaintiff's participation because of plaintiff's failure to produce evidence demonstrating his or the DeFaber group's eligibility. Although the trustees' written decision to uphold the Plan Administrator's denial of benefits was not a model of clarity, the reasoning behind the denial of plaintiff's claims is abundantly clear and was reasonable given the evidence before the trustees at their February meeting.
It was no doubt clear to plaintiff and DeFaber from repeated Fund requests for employee wages and tax information that the Fund had serious questions concerning the group's eligibility. Yet, neither plaintiff nor DeFaber produced any records until well after the Board rendered its decision. Although it has no bearing on our decision, we note that the 1099 tax form that plaintiff eventually did produce after litigation commenced showed that plaintiff earned a total of $ 575 in "nonemployee compensation" from DeFaber in 1990. Plaintiff's Exhibit B.
When DeFaber was not forthcoming with its employment records the Fund reasonably terminated the group's participation. At the hearing before the Board of Trustees, plaintiff and DeFaber had every opportunity to offer evidence establishing their eligibility. They failed to do so and the Board upheld the Plan Administrator's decision to terminate. Other courts have upheld a trustee's denial of benefits when a claimant fails to provide information reasonably requested by the plan administrator. See, e.g., Bali v. Blue Cross and Blue Shield Ass'n, 683 F.Supp. 1220 (N.D.Ill. 1988), aff'd, 873 F.2d 1043 (7th Cir. 1989) (failure to provide medical information).
Only the employer can demonstrate how many employees it has and thus show that contributions were made for all of them. Therefore, the Fund must rely upon employers for this necessary information. In recognition of this reality, the Trust Agreement explicitly requires employers and employees to furnish the trustees with such records and information requested to verify their eligibility. Lasky Affidavit, Exhibit A, art. XIV § 1.
The failure of plaintiff and DeFaber to produce their employee records upon request would itself violate the Trust Agreement that they were bound to comply with under paragraph 3 of the Associate Membership Agreement. Paying out benefits to employers who can not (or will not) demonstrate their eligibility when specifically requested to by the Fund would jeopardize the Fund by enabling ineligible employees to collect benefits so long as they got their claims in before the Fund discovered their ineligibility.
Based on this failure to produce proof of full enrollment, coupled with the suspect timing of the submission of plaintiff's benefits claims and DeFaber's notice of withdrawal and plaintiff's admission of his independent contractor status, the Board concluded that DeFaber had not made contributions for all its employees.
The DeFaber group's participation was terminated for violation of both the Associate Membership and Trust agreements.
The Board, in its February 28 letter, noted a second, independent reason for declaring plaintiff ineligible for Fund participation, his status as an independent contractor. The Board, however, did not rely upon this rationale for their decision. If they had made this consideration part of their decision the court's task would have been even more straightforward. The Fund's rule excluding independent contractors from eligibility was within the trustees' authority to interpret the Trust Agreement and could not be considered arbitrary. The relationship between employer and independent contractors is less certain and more amorphous than with full-time employees. As a result, the risks of selective enrollment or extended Fund participation by contractors who perform irregular or isolated services are greater.
Like the trustees, we do not rest our conclusions upon this rationale. However, we recognize that the trustees decision was clearly informed by DeFaber's admission that plaintiff was an independent contractor. Where "it is possible to offer a reasoned explanation, based on the evidence, for a particular outcome, that outcome is not arbitrary or capricious. Exbom v. Central States Health and Welfare Fund, 900 F.2d 1138, 1142 (7th Cir. 1990) (quoting Pokratz v. Jones Dairy Farm, 771 F.2d 206, 209 (7th Cir. 1985)); Davis v. Kentucky Finance Cos. Retirement Plan, 887 F.2d 689, 693 (6th Cir. 1989), cert. denied, 495 U.S. 905, 110 S. Ct. 1924, 109 L. Ed. 2d 288 (1990); Gaunt v. CSX Transp., Inc., 759 F.Supp. 1313, 1318 (N.D.Ind. 1991). After considering all the evidence before it and providing plaintiff ample opportunity to produce evidence demonstrating his eligibility, the trustees' refusal to process plaintiff's benefits claims was neither arbitrary nor in bad faith as a matter of law.
Lastly, we reject plaintiff's contention that the Fund was bound by the representations of Consolidated or Mr. Sorezza. Because the Fund's actuarial soundness is ultimately at stake, absent extraordinary circumstances, courts are reluctant to apply estoppel to require trustees to pay benefits to persons not entitled to them. See Chambless v. Masters, Mates & Pilots Pension Plan, 772 F.2d 1032, 1041 (2nd Cir. 1985), cert. denied 475 U.S. 1012, 89 L. Ed. 2d 304, 106 S. Ct. 1189 (1986). At oral argument, plaintiff argued that Consolidated acted more as an insurance broker soliciting businesses to join the Fund. In response, the Fund stressed that it does no business with insurance brokers. Rather, Consolidated was DeFaber's designated collective bargaining representative whose function, besides representing DeFaber in bargaining with NOITU, was to collect employer premiums and turn them over to the Fund.
To resolve this issue, we need only look to the provisions of DeFaber's Associate Membership Agreement. Paragraph 12 explicitly states that "In all matters pertaining to this Agreement, Consolidated shall be acting as the agent of the Employer." Thus, it is DeFaber not the Fund who may be bound by any representations by Consolidated. No statements by a Consolidated representative could estop the Fund from denying plaintiff's participation for DeFaber violations of the Trust and Associate Membership Agreements.
Additionally, the decision not to refund plaintiff's contributions after termination must also stand. Once plaintiff was terminated for ineligibility of the DeFaber group, it was reasonable for the Fund to protect its fiscal integrity by offsetting the outstanding January and February contributions by the benefit amounts it had already paid which exceeded the total contributions of the ineligible DeFaber employees.
To conclude, since no material factual issues are in dispute and reasonable minds could not differ as to the import of the evidence, summary judgment is appropriate in this case. See Fed.R.Civ.P 56(c). The denial of plaintiff's benefits claims, as a matter of law, was neither arbitrary nor irrational. Thus, the court grants defendant's cross-motion for summary judgment and concurrently denies plaintiff's motion for summary judgment.
Dated: White Plains, New York
January 20, 1992.
GERARD L. GOETTEL