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SEFF v. NATIONAL ORG. OF INDUS. TRADE UNIONS INS.

January 20, 1992

VICTOR SEFF, Plaintiff, against NATIONAL ORGANIZATION OF INDUSTRIAL TRADE UNIONS INSURANCE TRUST FUND, Defendant.

GOETTEL


The opinion of the court was delivered by: GERARD L. GOETTEL

GOETTEL, D.J.,

 Victor Seff, the plaintiff, commenced this action against the National Organization of Industrial Trade Unions Insurance Trust Fund challenging a denial of health benefits as a violation of the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq.. Both plaintiff and defendant currently move for summary judgment.

 I. FACTUAL BACKGROUND

 Plaintiff Victor Seff sought to be a participant in the defendant National Organization of Industrial Trade Unions Insurance Trust Fund ("the Fund"), a joint labor-management health and welfare trust fund. The Fund is governed by ERISA and was established by agreement between the National Organization of Industrial Trade Unions ("NOITU") and employers with which the union had collective bargaining agreements.

 Pursuant to a Declaration of Trust (the "Trust Agreement") that formally established the Fund, a Board of Trustees composed of four union representatives and four employer representatives administers the Fund which consists of employer contributions and the investment income earned from them. The Fund provides group insurance and health benefits to eligible members of NOITU and their dependents. Article VI § 1 of the Trust Agreement gives the trustees full authority to determine eligibility requirements and set them down in binding rules and regulations. Under article III § 5, the Trust Agreement also empowers the Trustees to enforce against employer participants all rules and regulations "duly formulated and established" by the Trustees. Moreover, under article V § 2, the trustees have the discretion to interpret and apply the provisions of the trust agreement. Any interpretation adopted in good faith is binding upon all parties to the trust agreements.

 Members of the Fund who are represented by NOITU solely for purposes of health benefits (and not for wages, hours, etc.) are termed Associate Members. In addition to the Trust Agreement, their participation in the Fund is governed by a separate Associate Membership Agreement. Paragraph 3 of the Associate Membership Agreement binds employers to comply with its terms plus all terms of the Trust Agreement. To be eligible under the Associate Membership Agreement, employers must submit contributions to the Fund on behalf of all of their employees.

 In 1989, Glen DeFaber Private Investigators ("DeFaber") joined the Fund as a Associate Member enrolling DeFaber and 2 other employees (including plaintiff) in the Fund. According to plaintiff, DeFaber relied upon certain representations of a Mr. Sorezza regarding the eligibility of his employees to join the Fund. For purposes of collective bargaining with NOITU, DeFaber designated in the Associate Membership Agreement an employer representative, Consolidated National Services Co., Inc. ("Consolidated") to represent their interests on issues relating to the Fund. The DeFaber group made contributions to the Fund and received health benefits from October 1989 through January 1991.

 On January 10, 1991, the Fund received from Consolidated a notice to terminate the participation in the Fund of 2 of the 3 DeFaber employees effective February 1, 1991. Some time afterward, plaintiff, who would have been the sole participant from the DeFaber group beginning February 1st, submitted benefits claims for surgery and medical treatment for a shoulder injury. After receiving the notice of termination and discovering that only one DeFaber employee would remain a Fund participant, the Fund contacted both Mr. DeFaber and plaintiff requesting information necessary to verify the number of people employed by DeFaber and plaintiff's eligibility under the Fund rules.

 Pending a determination of plaintiff's eligibility the Fund refused to pay plaintiff's claims citing a Fund policy that outstanding claims are not paid when a contributing employer is terminated from participation or when an employee's eligibility is under examination. Their obvious concern was that contributions were no longer being made for all of the DeFaber employees, an impermissible situation under Fund rules.

 On January 23, 1991, the Fund sent plaintiff a letter informing him that his participation in the Fund was being terminated due to plaintiff's failure to offer evidence of his eligibility. The letter also informed plaintiff of his right to appeal the termination decision to the Board of Trustees. Plaintiff did so at a February 12 Board meeting. Both plaintiff and Mr. DeFaber were present at the meeting and were afforded an opportunity to challenge the Plan Administrator's decision. Defendant notes that no tax or wage information were presented at the meeting, or in response to earlier requests, to verify that all of DeFaber's employees had been enrolled in the Fund.

 In a written decision dated February 28, 1991, the Trustees notified plaintiff that the Fund Administrator's decision to terminate was upheld. They concluded that DeFaber had violated the Fund rules by failing to submit contributions on behalf of all employees. Additionally, the Trustees noted in a footnote that plaintiff, as an independent contractor, may have been ineligible originally to be a Fund participant. The Trustees, however, specifically stated that they were not relying upon this reason for the denial of plaintiff's benefits request. Plaintiff concedes that he was an independent contractor for DeFaber. Seff Affidavit at 1.

 Plaintiff commenced this action to recover benefits for $ 7000 in medical expenses from surgery performed in January 1991. In addition, the Fund did not refund the January or February contributions of DeFaber or plaintiff because of its policy of refusing to refund contributions when the total benefits paid to an employer's employees exceeds the total contributions received from that employer. Plaintiff also seeks to recover these unrefunded contributions.

 Before the court today are plaintiff's motion and defendant's cross-motion for summary judgment. While his complaint states a cause of action for breach of contract, plaintiff agrees with defendant that ERISA preempts state common law contract claims relating to employee benefits plans. Therefore, plaintiff's basic claim is for alleged violations of ERISA. ERISA permits the bringing of civil actions in federal court "by a participant or beneficiary to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B).

 Plaintiff argues that the Trustees' termination of his participation in the Fund was arbitrary and capricious. He contends that the Trust Agreement does not define "employee" and no evidence existed that some DeFaber employees were excluded from enrollment in the Fund. According to plaintiff, the trustees arbitrarily terminated plaintiff's enrollment in January even though the two DeFaber employees who discontinued their enrollment did so effective February 1, 1991. Lastly, plaintiff argues that defendant ...


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