The opinion of the court was delivered by: JOHN T. ELFVIN
A trustee and three participants of the Ramco Steel, Inc. Retirement Plan ("the Plan") brought this suit against three former officers and shareholders of the now bankrupt Ramco-Fitzsimons, Inc. ("Ramco") under section 502 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132, and section 301 of the Labor-Management Relations Act ("LMRA"), 29 U.S.C. § 185, seeking recovery of unpaid contribution funds allegedly withheld from the Plan in violation of ERISA and the collective bargaining agreement ("the cba") between Ramco and the United Steelworkers of America, Local 2248 ("the Union"). Presently before this Court are the defendants' motion for summary judgment or partial summary judgment and to strike the plaintiffs' jury demand, and the plaintiffs' cross-motion for summary judgment. The motions will be denied.
The plaintiffs' contention in this action is that Ramco wrongfully failed to remit timely to the Plan Ramco's contribution funds for the years 1980 through 1982 and has yet to remit funds for the years 1983 through 1985. In the first cause of action they allege that the defendants breached their fiduciary duties by failing to collect and remit the required contributions timely, by failing to notify the participants of the delinquency, by deliberately concealing the same and by profiting from such nonpayment. In the second cause of action, the plaintiff-trustee claims that the defendants -- as officers and the largest shareholders of Ramco -- were the employers as defined by ERISA and thus are personally liable for the unpaid contributions. The Complaint prays for an order compelling payment of all unpaid contributions and for other equitable relief pursuant to section 502(a)(3)(B) of ERISA, 29 U.S.C. § 1132(a)(3)(B), and section 301 of LMRA, 29 U.S.C. § 185, and for damages for emotional distress and pain and suffering.
Although the United States Court of Appeals for the Second Circuit has yet to demarcate the area of individual liability for corporate ERISA obligations, Sasso v. Cervoni, 985 F.2d 49, 51 (2d Cir.), cert. denied, U.S. , 113 S. Ct. 2964, 125 L. Ed. 2d 664 (June 1993), those appellate courts in other circuits that have examined the question have held that the definition of "employer" in section 1002(5) does not encompass individual officers, directors or shareholders of an employer corporation and have refused to impose personal liabilities where there is no basis for piercing the corporate veil. Rockney v. Blohorn, 877 F.2d 637, 641-643 (8th Cir. 1989); Scarbrough v. Perez, 870 F.2d 1079, 1082-1084 (6th Cir. 1989); Intern. Broth. of Painters v. George A. Kracher, 272 U.S. App. D.C. 384, 856 F.2d 1546 (D.C.Cir. 1988); Solomon v. Klein, 770 F.2d 352 (3d Cir. 1985). See also Solomon v. R.E.K. Dress, 670 F. Supp. 96, 99 (S.D.N.Y. 1987). ERISA defines "employer" as "any person acting directly as an employer, or indirectly in the interest of the employer, in relation to an employee benefit plan * * *," 29 U.S.C. § 1002(5), and, in turn, "person" as "an individual, partnership, joint venture, corporation, mutual company, joint-stock company, trust, estate, unincorporated organization, association, or employee organization," 29 U.S.C. § 1002(9). These courts have reasoned that, absent a clear indication of congressional intent to expose officer-shareholders to personal liability for the corporate employer's ERISA violations, there should be a reluctance to disregard the principle of limited liability which is the cornerstone of corporate practice. See, e.g., Intern. Broth. of Painters v. George A. Kracher, 856 F.2d at 1550. They have concluded that the omission of "officer-shareholder" from the extensive enumerations of "persons" who constitute the "employer" under ERISA indeed suggests the Congress's intent not to impose such individual liability. See, e.g., ibid. In light of the overwhelming weight of the authority limiting such imposition of personal liability, this Court finds unconvincing the plaintiffs' unsupported assertion that this Court should "make its own determination" to the contrary.
However, the United States Court of Appeals for the Second Circuit has recognized special circumstances that warrant the imposition of personal liability on corporate officers. In Leddy v. Standard Drywall, Inc., 875 F.2d 383 (2d Cir. 1989), it was held "that at least to the extent that a controlling corporate official defrauds or conspires to defraud a benefit fund of required contributions, the official is individually liable under Section 502 of ERISA, 29 U.S.C. § 1132, * * * even if the traditional conditions for piercing the corporate veil are not met." Id. at 388. The Court reasoned that "shielding from liability a controlling corporate official who * * * deliberately flouts ERISA obligations by conspiring to defraud employee pension and welfare plans would surely defeat [the] legislative purpose" of ERISA "to promote the interests of employees and their beneficiaries in employee benefit plans and to protect contractually defined benefits." Ibid.
"The Defendants failed to notify the participants that the required contributions had not been collected and remitted to the Plan, and they did not seek a waiver pursuant to applicable law relieving them of the obligation to remit said contributions. In fact, the Defendants caused a statement to be issued to the participants in approximately May 1984 which indicated that the 1983 contribution had been made. Upon information and belief, the Defendants' actions in this regard were an attempt to fraudulently conceal the fact that the required contributions had not been made." Amended Complaint, filed May 18, 1989, P 25.
The statement referred to in the Amended Complaint is the individual statement of account as of December 31, 1983 distributed to the participants in the Spring of 1984. The statement showed, under the column titled "12/31/83 Fund Balance," amounts that included the amounts of contributions for the plan year 1983, ostensively implying that such contributions had already been made to the fund. See Statement of Account as of December 31, 1983, Plaintiffs' Exhs. Z and AA. The plaintiffs claim that, as a result of such fraud, the participants did not learn until July 1985 that the company was delinquent in its contributions to the Plan. See Affidavit of Stanley L. Ches in Support of Motion for Summary Judgment (sworn to August 18, 1992); Affidavit of Joseph Benbenek in Support of Motion for Summary Judgment (sworn to August 20, 1992). In essence it is the plaintiffs' assertion that the defendants have evaded payment of the contributions by deceiving the participants -- i.e., by issuing misleading statements of account which had caused the participants to believe that such payment had already been made, by deliberately failing to correct such misconception and by concealing their failure to make timely contribution. This Court finds that such fraud, if proved, can provide a basis for imposition of personal liability on the defendants as controlling corporate officials who defrauded or conspired to defraud participants through non-payment of required contributions. See Leddy v. Standard Drywall, Inc., 875 F.2d at 388.
In their responding memorandum of law, the defendants argue that no fraud could have been committed by them because (1) the statements to which the plaintiffs refer were prepared not by the defendants but by The Johnson Companies, "a nationally recognized independent pension management and administration firm," (2) the statements "apparently" were prepared on an accrual basis as of December 31, 1983 and (3) the contributions to the Plan were completely current, the next contribution -- that for plan year 1982 -- being due on April 15, 1984 and the 1983 contribution not being due until sometime in 1985. The defendants further claim that defendant Hobbs -- in response to union officials' inquiries, upon the issuance of the statement, why the rate of interest earned in 1983 appeared not to correspond properly to the December 31, 1982 fund balance -- had explained to the officials on a number of occasions that the statements had been prepared on an accrual basis and that a portion of the fund balance -- the accrued contributions that were not yet due -- had not been paid into the plan. In support the defendants point to a letter dated June 18, 1984 from The Johnson Companies to Martin Szarek, one of the original plaintiffs in this action, which reads in part:
"At your request, I have been instructed by Jerry Hobbs to respond to you regarding the interest earned under the above plan for 1983. Please note that the rate of return allocated to participants was as follows:
1976 and Prior Year Account 8%
1977 and Current Year Account 7.75%"
Affidavit of Robert J. Feldman in Support of Defendants' Motion for Summary Judgment, etc. (sworn to January 24, 1992), Exh. A.