workers, and whether they actually rendered services to the Fund.
At this point, a matter of clarification is in order. In Teamsters I, in deciding whether Trustee DePerno was entitled to take advantage of the exemption contained in 29 U.S.C. § 1108(b), this court held that Trustee DePerno had "not proven that additional maintenance workers were needed during the winter months." Teamsters I, 816 F. Supp. at 146. That is, defendants did not meet their burden of Proving that hiring additional maintenance workers was necessary during the winter months. In order to avoid ERISA liability, a breaching party must prove that their actions with a party in interest was "for services necessary for the operation . . . of the plan," 29 U.S.C. § 1108(b), if no more than reasonable compensation was paid. This implies that to avoid liability, in each year they rehired the cooks, the defendants must justify that it was necessary for the operation of the plan that these cooks be employed as maintenance workers. As stated in Teamsters I, there was no evidence that the hiring of these particular cooks was necessary during the winter months because they possessed some unique skill or special qualities "that made them indispensable for the job." 816 F. Supp. at 146.
On the other hand, in order to prove that the Fund suffered no damages because of the breach, the party to the self-dealing must prove that the services rendered by the additional maintenance workers were reasonably necessary. This means that in order to prove that the additional maintenance workers were reasonably necessary, the defendants must show that there was a legitimate reason to rehire the cooks in each year, and that they actually rendered services to the Fund. It is only because the court previously found that Trustee DePerno violated his fiduciary duty to the Fund when he hired parties in interest, that the court must decide whether defendants have met their burden of proving both that the decision to hire the cooks was based on legitimate reasons, and that they rendered actual services to the Fund.
When he hired the additional maintenance workers, Trustee DePerno acted on the advice of Carmen DePerno, who was insistent that he be provided with extra help during the winter months. In fact, Carmen DePerno once threatened to quit if he was not provided with additional maintenance workers. (C. DePerno Test. at 474) Carmen DePerno was head of maintenance and security, and it was his job to determine just how many maintenance workers were needed to upkeep the building and the surrounding grounds. It was his opinion that he "definitely" needed the additional maintenance workers each fall. (Id. at 473; 475) Although plaintiffs offered the testimony of Sgaglione who initially disagreed with the decision to hire additional maintenance workers, he did not object to hiring the Sea Shell cooks in the years following 1981.
More important, however, Sgaglione was not in charge of maintenance and security during the years in question. Trustee DePerno deferred to the experience of his brother Carmen in deciding to hire additional maintenance workers for the winter months, and it was reasonable for Trustee DePerno to rely on Carmen DePerno's expertise.
This conclusion does not end the court's inquiry, however. Because the court found that Trustee DePerno violated his fiduciary duty to the Fund when he hired parties in interest, the court must first decide whether defendants have proven that the hiring of the additional maintenance workers during the winter months was for legitimate reasons.
The employment of the additional maintenance workers was reasonably necessary because even when the Fund employed four maintenance workers, the regular full-time maintenance workers continued to receive overtime; i.e., the presence of the Sea Shell cooks did not cause duplication of work. An attempt to reduce overtime is a legitimate reason to hire additional workers. In years subsequent to 1981/82, the Fund regularly and continuously paid significant amounts of overtime to the full-time maintenance workers.
A few examples include: during the week ending January 27, 1984, Pendolf logged 25 overtime hours, while Brockway logged 4.5 overtime hours; in the weeks ending November 16 and 24, 1984, Pendolf logged 19.5 and 19 overtime hours respectively, while Brockway logged 19 and 10 overtime hours respectively; and in the weeks ending January 11 and 18, 1985, Pendolf logged 27 and 25 overtime hours respectively, while Brockway logged 25 overtime hours in each week. Given the number of overtime hours and the fact that there were at least four maintenance workers employed at the Fund, there was obviously not only necessary maintenance work to be done, but a need to reduce overtime maintenance hours. This happened when the additional maintenance workers were employed at the Fund.
For example, in August and September 1984, the two months prior to the employment of Dyer and VandenBosch for the upcoming winter months, Pendolf and Brockway logged more than 300 hours in overtime (Pltf's. Trial Exs. 11, 12), at overtime pay rates of $ 19.28 and $ 16.37 per hour respectively.
By contrast, in October and November 1984, when Dyer and VandenBosch were employed, overtime hours paid to Pendolf and Brockway amounted to approximately 200 hours. Since Dyer and VandenBosch were hired in October 1984, at a rate of $ 8.14 per hour, the Fund saved nearly $ 1000 in overtime wages because of the additional maintenance workers. The two Sea Shell cooks hired for the winter months at a lower wage undoubtedly saved overtime hours which were paid at one and a half times the regular wage.
In rebuttal, at trial, plaintiffs offered the testimony of Sgaglione, who disagreed with the initial decision to hire additional maintenance workers, and argued that the hiring of additional maintenance workers was unnecessary due to the fact that the amount of maintenance hours dramatically decreased in the years following 1985, the last year the Sea Shell cooks were rehired for the winter months. However, there is no doubt that the decision to hire the Sea Shell cooks was a violation of ERISA. Both this court and the Second Circuit have determined that such a conclusion is "well supported by the record." Teamsters II, 18 F.3d at 182. However, it was a legitimate reason to hire these additional maintenance workers in an attempt to reduce the massive overtime being earned by Pendolf and Brockway. Even if the total maintenance hours did decrease in the years following 1985, it was still reasonable to attempt to reduce the overtime hours of the regular maintenance workers at the time.
Moreover, as discussed briefly above, during at least six different time periods in the years 1982-86 (three of which were winter months) there was at least one other maintenance worker employed by the Fund besides Pendolf, Brockway, and the cooks. During the winter months of 1982/83, David Murad was hired as a maintenance worker which made a total of five maintenance workers from October 1982 through March 1983.
This situation occurred once more during the period in question. From November 11, 1985, through February 14, 1986, Joseph Murad joined the two full-time maintenance workers and the two Sea Shell cooks, VandenBosch and Dyer.
The court is satisfied that the cooks were hired for legitimate reasons in all five winter seasons. During 1981-82, it was to replace the dismissal of a regular full-time maintenance worker. For the 1982-85 winter seasons, it was to reduce or at least attempt to keep reasonable overtime hours of work for the two full-time maintenance workers who were paid at time and a half. The cooks were, of course, hired for the legitimate reason to perform routine maintenance work.
The court must now decide whether the cooks rendered actual services to the Fund. As this court has previously held, the services of the cooks were "reasonable, beneficial, helpful, and useful to the Fund. . . ." Id. at 151. The four Sea Shell cooks, none of whom are currently in the employ of either party, testified that they performed one or more of the following tasks: vacuuming floors and carpets, mopping and sweeping floors, polishing furniture, stripping and rewaxing floors, cleaning mirrors and glass, cleaning bathrooms, salting and shoveling steps and sidewalks, re-arranging storage rooms, and performing other general janitorial duties. (Longo Test. at 124-25; DeCosty Test. at 143; VandenBosch Test. at 155); Id. at 150. DeCosty testified that each night upon reporting for work he was given a list of tasks to accomplish before the end of his shift. (DeCosty Test. at 143) Longo testified that there was always something to be done. (Longo Test. at 125) All the evidence indicates that the cooks performed janitorial tasks that needed to be accomplished. Therefore, the services rendered by these additional maintenance workers were reasonably necessary because the tasks were of such a nature that they would have been completed even in the absence of the Sea Shell cooks.
The plaintiffs have offered no evidence to cast doubt on the fact that the cooks actually performed maintenance work. There is no evidence that the cooks did not work each day. In fact, this court has previously determined that the cooks were paid only for the days that each worked, i.e., they were not no-show jobs. Additionally, the cooks performed routine maintenance duties as noted above.
Since the defendants have proven that the additional maintenance workers were reasonably necessary, they "must prove that the value of their reasonably necessary services at least equaled the sums paid . . . ." Teamsters II, 18 F.3d at 183. This question need not detain the court for long. The only evidence with regard to the salary of the maintenance workers is that they were paid the low end of the wage scale. Therefore, they were paid with a reasonable wage, and were paid only for the work they actually performed.
"The work of the seasonal maintenance workers (i.e., the Sea Shell cooks) was reasonable, beneficial, helpful, and useful to the Fund; and they were hired for reasonable compensation." Teamsters I, 816 F. Supp. at 151. There is no disputing the fact that Trustee DePerno violated his fiduciary duty to the Fund. In such a case, ERISA demands that he make the Fund whole for any and all losses it may have suffered because of his actions. However, the Fund was not injured because of the employment of the Sea Shell cooks hired as maintenance workers during the 1981-85/86 winter months. Because the defendants have proved by a preponderance of the evidence that the cooks were hired for legitimate reasons, that they performed actual work for the Fund, and were paid a reasonable wage, they have met their burden that the services rendered were reasonably necessary.
Therefore, upon remand, plaintiffs are again awarded the sum of One Dollar in nominal damages due to the fact that defendants have proven that the Fund suffered no loss because of their breach of fiduciary duty. For the same reasons set forth in Teamsters I, 816 F. Supp. at 152, there is no award of attorneys fees and expenses, except those relating to the successful defense of the counterclaims. Teamsters II, 18 F.3d at 183. A separate order will follow on that issue.
The Clerk is directed to enter judgment accordingly.
David N. Hurd
U.S. Magistrate Judge
Dated: July 8, 1994
Utica, New York.