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July 26, 1993


The opinion of the court was delivered by: VINCENT L. BRODERICK



 This case, although involving a relatively small amount (approximately $ 10,000) of unpaid fringe benefit contributions due from a small construction firm, raises important questions concerning means of collection of such delinquencies. It also presents the issues of how reasonable attorney's fees should be calculated in debt collection suits such as this one brought pursuant to federal law (in this instance under ERISA, 29 USC § 1132), and of when out-of-court oral settlement agreements between counsel are binding.

 Defendant Roman Asphalt Corp. ("Roman") by its answer concedes liability for the unpaid contributions claimed but states that its delinquency resulted from inability to pay. Plaintiffs (the "Funds") seek summary judgment for the delinquent amounts, for agreed liquidated damages for delay, and for attorney's fees. Roman has cross-moved to enforce a purported oral settlement agreement between counsel.

 I grant the Funds' motion for summary judgment for the amounts due in connection with the delinquency as set forth in P 6 ("P 6") of the affidavit in support of the Funds' application ("Fund affidavit"), and for reasonable attorney's fees as sought in the amount of $ 3,287.50. The Funds may serve and file a proposed judgment for these amounts. *fn1" Roman's cross-motion to enforce the asserted settlement is denied.


 This controversy must be evaluated against the background of the special status of fringe benefit contributions under 29 USC § 1132. It must also be considered in the context of the guidance given to the federal courts in debt collection suits by the Federal Debt Collection Procedures Act of 1990, 28 USC § 3001 et seq. Consideration must also be given to the proper treatment of situations in which the litigation activity generated may be unjustified by the amounts at stake. *fn2"

 The importance of reliable payment of agreed employer payments to employee fringe benefit funds has increased steadily ever since such benefits were made a mandatory subject of collective bargaining. See Inland Steel Co. v. NLRB, 170 F.2d 247 (7th Cir. 1948), cert. denied 366 U.S. 960 (1949).

 The critical importance of regular payments by employers to long-term employee benefit programs *fn3" is underlined by the current reliance on third-party financed health care and other essential protections of the welfare of employees and their families. *fn4" The need for a dependable flow of funds and the nature of the employer-union relationship counsel against special concessions to any given employer, unless comparable extensions to work out debt obligations would be considered appropriate in other cases as well.

 Trustees of employee benefit funds are required to administer them "solely in the interests of the plan's participants and beneficiaries in a prudent fashion," 41 Fed. Reg. No. 60 at 12740 (March 26, 1976). Such trustees are required to make "systematic, reasonable and diligent efforts to collect delinquent contributions . . ." Id. at 12741. Further, if "failure to collect is the result of an arrangement, agreement or understanding, express or implied, between the plan and the delinquent employer, such failure to collect a delinquent employer contribution may be deemed to be a prohibited transaction." Id.; see Diduck v. Kaszycki & Sons Contractors, 974 F.2d 270, 277 (2d Cir. 1992).

 Against this backdrop courts should be reluctant to enforce controverted informal oral commitments to grant to particular employers pre-judgment extensions of time for payment of fringe benefit contributions. At the same time, collection is often most effective when workouts, rather than destruction of a enterprise in financial difficulty, can be arranged. The very urgency of an objective within the legal system tends, unless care is taken, to lead to excessively rigid implementation of the goal with counterproductive results. *fn5"

 Employer contributions to fringe benefit funds have been regulated by federal law since the enactment of 29 USC § 186, as § 302 of the National Labor Relations Act of 1947 ("Taft-Hartley Act"), Public Law 101 - 80th Congress. Section 302, in providing for joint employer and union control of such funds, was designed to prevent unilateral union control which might lend itself to employer payments for union use that could influence union officials to favor a particular employer's interests.

 Such cozy relationships would be contrary to the duty owed by labor organizations fairly to represent all employees in the bargaining unit in exchange for exclusive bargaining authority provided by the original Wagner Act of 1936, carried over under the Taft-Hartley Act as 29 USC § 159. See Chauffeurs, Teamsters & Helpers Local No 391 v. Terry, 494 U.S. 558, 110 S. Ct. 1339, 108 L. Ed. 2d 519 (1990); Steele v. Louisville & Nashville R. Co., 323 U.S. 192, 89 L. Ed. 173, 65 S. Ct. 226 (1944); see also Taormina v. International Union, 798 F. Supp. 193 (S.D.N.Y. 1992). The joint welfare fund provision is one of the exceptions to an otherwise sweeping ban on employer contributions to unions or union officials, imposed as a means of avoiding favoritism to generous employers.

 Special treatment of favored employers tends to encourage or reflect the existence of "sweetheart" arrangements detrimental to employees of the favored employers, and also hurting competitors of such employers. See Federal Bar Council, Committee on Labor Law, "Sweetheart Contracts," 115 Cong. Rec. S. 6318 (daily ed. June 12, 1969), 23 Industrial & Labor Rel. Rev. No 1 at 105 (Oct. 1969). Arrangements of this type, when allowed to fester, have in the long history of the American labor movement frequently led to violence. See P. Zausner, Unvarnished (1941).

 The need to deter "sweetheart contracts" in labor relations extends to small as well as large employers, inasmuch as once tolerated, the practice has a tendency to spread; this need has supported expansive application of the federal commerce power over industries affecting commerce to punish even bribes designed to facilitate dismissal of a single janitor in an apartment building. See United States v. Ricciardi, 357 F.2d 91 (2d Cir.), cert. denied 384 U.S. 942, 16 L. Ed. 2d 540, 86 S. Ct. 1464 (1966).

 Where a large number of small as well as larger employers forms a significant part of an industry, multi-employer (often industry-wide or local union-wide) fringe benefit plans are common. The existence of such plans reflects the instability of employers and the high mobility of work. In the case of the construction industry, these realities are reflected in legislative authorization granted by 29 USC § 158(f) for otherwise prohibited prehire collective bargaining contracts.

 Uniform multi-employer contribution standards are recognized as vital to employees, their unions, and competing employers in industries of this type. See Brooks, The Sources of Vitality in the American Labor Movement 22 (Cornell University 1960). This may be one reason for the mandatory rather than discretionary nature of awards of attorney's fees in successful suits to collect fringe benefit contributions under ERISA, 29 USC § 1132(g)(2)(d).

 In this context, even-handed and reliably firm collection of sums due for fringe benefits is important to maintaining a level playing field for employers. If one competitor can postpone such payments and thus underbid a rival, that rival may be injured in the marketplace in the same way it would have been injured if its competitor had arranged for lower wages or other reduced labor costs through an overt sweetheart arrangement.

 These factors militate in favor of strict enforcement of the obligation to make welfare fund contributions, as sought by the Funds here.


 Inability to pay, although alleged in Roman's answer to the complaint, is not a defense in a debt collection case unless some contract provision or statute makes it so. *fn6" Financial difficulties may form a basis for agreed or judicially crafted payment arrangements if adequate to protect the creditor and hence beneficial to both parties, and, in an ERISA fund debt collection case, if not unduly favorable to a given employer.

 Entry of judgment for a debt does not automatically mean that all potential collection devices are immediately available regardless of circumstances. New York Civil Practice Law & Rules § 5240, like the persuasive if not directly applicable Federal Debt Collection Procedures Act, 28 USC § 3013, permits courts to supervise such devices.

 This authority might be exercised if there would be a greater probability of payment of the employer's delinquent fringe benefit contributions through a workout. It may also be significant where execution on a judgment would be likely to lead to loss of the economic activity represented by the employer without securing full payment.

 Compelling recourse to the expensive procedure of Chapter 11 reorganization with its negative effects on others is not necessarily the optimum outcome, as reflected in the well-known fact that creditors in both business and consumer cases frequently and routinely negotiate workouts once the amount due is agreed to or established by judicial decision. *fn7"

 Creating a loophole permitting groundless efforts to delay payment would encourage misuse of the flexibility accorded by CPLR § 5240. In this case, counsel for the Funds has submitted an uncontradicted statement that a check for agreed partial payment had been sent to my chambers rather than to the Funds, causing delay in retransmission, and was thereafter returned by the bank on which drawn because of insufficient funds. Under these circumstances, judicial intervention to seek to mitigate effects of ordinary collection processes would be inappropriate.


 The Funds have submitted billing sheets showing legal fees of $ 3,287.50. The total amount due the Funds is slightly in excess of $ 10,000; a significant portion of the legal expenses claimed by counsel for the Teamsters Fund relate to the cost of settlement discussions.

 Paragraph 9 of the Fund affidavit ("P 9") states that similar billing sheets were accepted in numerous cases in the United States district court, cited by docket number and not referred to in the Fund's memorandum of law.

 These cases are not cited to the Federal Supplement, Federal Rules Decisions, LEXIS, WESTLAW or any other published source, nor are copies of any rulings in them provided to me or to Roman's counsel. One of these unpublished and unprovided rulings was affirmed by the Second Circuit in an unpublished 1988 decision cited in P 9 of the Fund affidavit at p. 5. The affidavit appears to ignore Rule 0.23 of the Rules of the United States Court of Appeals for the Second Circuit, limiting citation of such decisions, without explaining why Fed.R.Civ.P 1, 61 or other ...

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