The opinion of the court was delivered by: SHIRLEY WOHL KRAM
SHIRLEY WOHL KRAM, U.S.D.J.
In this action arising out of an employer's alleged failure to make required payments to certain employee benefit funds, brought pursuant to §§ 502(a)(3) and 515 of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1132(a)(3) & 1145 ("ERISA"), and § 301 of the Labor-Management Relations Act of 1947, 29 U.S.C. § 185, defendants J. Barry Richman ("Richman") and Mark Giacoia ("Giacoia") move, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment dismissing the complaint against them. Plaintiff Trustees of the Building Service 32B-J Pension, Health and Annuity Funds ("Trustees") opposes the motion and cross-moves, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment against all defendants. For the reasons set forth below, both motions are denied.
Between 1984 and October 1991, defendant Citywide Service Corp. ("Citywide") was a cleaning contractor in the business of providing commercial cleaning and maintenance services to buildings in New York City. Defendant Richman was Citywide's president and sole shareholder.
Citywide was a party to two collective bargaining agreements (the "collective bargaining agreements") with Local 32B, a labor organization representing approximately 70,000 members, including cleaners, porters, handymen, doormen, elevator operators, superintendents and security guards. The collective bargaining agreements, covering calendar years 1990 through 1992, required Citywide to pay Local 32B members specified wages and to provide certain benefits such as paid holidays and vacations. Additionally, the collective bargaining agreements required Citywide to make monetary contributions to the Building Service 32B-J Pension, Health and Annuity Funds (the "Local 32B Funds") in the amount of approximately $ 5,000 per employee per year. Trustees
In 1990, due to the recession and the loss of several accounts, Citywide began to experience financial losses. In February 1991, upon receiving notice of legal action by Trustees, Richman learned that Citywide was indebted to the Local 32B Funds in excess of $ 300,000. After reviewing the matter, Richman determined that Citywide's bookkeeper unilaterally had decided to cease making payments to the Local 32B Funds several months earlier without his knowledge. Nonetheless, Richman neither paid the amount in arrears nor resumed making further payments. Moreover, despite Citywide's debts and financial difficulties, Richman drew approximately $ 559,000 in salary between 1990 and 1991.
In early 1991, due to Citywide's financial difficulties and the problems with the Local 32B Funds, Richman decided to close Citywide. Richman informed Giacoia, a Citywide employee since 1984 and vice-president since 1988, that the company would close at the end of the year and that he should seek alternative employment. At that time, Giacoia told Richman that he intended to open his own cleaning contracting business.
II. The Formation of Hudson
In May 1991, defendant Hudson Service Corp. ("Hudson") was incorporated with Giacoia as its president and sole shareholder. Richman was involved in Hudson's formation in several respects. First, Giacoia used Citywide's attorney and accountant, Paul Sessler, as his attorney for incorporation purposes. Second, the certificate of incorporation named an associate of Richman as one of Hudson's directors. Third, financing for Hudson's start-up was provided by Richman's wife, who orally agreed to lend Giacoia $ 60,000 without executing a promissory note.
Fourth, Citywide defrayed Hudson's start-up costs by paying Hudson's first week payroll. Fifth, Richman waived the non-competition clause in Citywide's employment contract with Giacoia so that he could commence business operations at Hudson. Sixth, when Citywide ceased operations in October 1991, Richman gave severance pay to Giacoia in the amount of $ 9,000.
Finally, Richman kept in constant communication with Giacoia during the time that Hudson began operations. Specifically, during the period immediately proceeding Citywide's closing and Hudson's opening in late 1991, Richman spoke with Giacoia on a special telephone line between three and five times each day. Thereafter, Richman continued to speak to Giacoia approximately one to three times per week.
In August 1991, Giacoia left Citywide and commenced operations at Hudson. In September 1991, Giacoia reached an agreement with Local 143, a competitor of Local 32B, pursuant to which Hudson's workers would receive significantly lower wages and benefits than required under the collective bargaining agreements with Local 32B. Hudson did not hire any Citywide employees who were members of Local 32B.
Hudson did, however, hire many of Citywide's non-Local 32B office employees, including Citywide's computer operator, bookkeeper, operations manager, supervisory personnel and the entire Citywide sales staff. The sales staff began soliciting Citywide accounts for Hudson while still in the employ of Citywide, leading to Hudson's acquisition of approximately eighty percent of Citywide's accounts. While Richman claims that he was unaware that his sales staff was soliciting business for Hudson, Giacoia admits that Richman and he had an understanding that the sales staff would engage in the solicitation of Citywide's business for Hudson. Although Richman received compensation for the sale of two smaller accounts to third parties, he received no payment for the accounts acquired by Hudson.