HVDC Funds. Plaintiffs also seek damages on this claim. We have jurisdiction over these claims under 29 U.S.C. §§ 186, 1109, 1132.
Under both ERISA and the Labor Management Relations Act, all assets of an employee benefit plan must be held in trust. See 29 U.S.C. § 1103(a); 29 U.S.C. 186(c)(5). The trust is, of course, typically established pursuant to a written trust agreement. ERISA further provides that every employee benefit plan "shall be established and maintained pursuant to a written instrument." 29 U.S.C. § 1102(a)(1). This plan instrument governs the operation of the plan and must, inter alia, provide a procedure for amending the plan. See 29 U.S.C. § 1102(b)(3). There is no dispute that each of the HVDC Funds was established and maintained according to a trust agreement and a plan instrument or that those documents provide for a four-member Board of Trustees.
Absent legislation to the contrary, the trust agreement controls the appointment of trustees. See Holcomb v. United Automotive Ass'n, 852 F.2d 330, 333 (8th Cir. 1988). Plaintiffs contend that ERISA contains a contrary provision, which states that trustees "shall be either named in the trust instrument or in the plan instrument . . . or appointed by a person who is a named fiduciary . . . ." 29 U.S.C. § 1103(a) (emphasis added). Plaintiffs argue that Frank, O'Beirne, Valente and John Parietti are therefore duly appointed trustees simply by virtue of being appointed by named fiduciaries of the plans. Section 1103(a) is not, however, contrary to the principle that the trust agreement controls the number of trustees that may be appointed. Nothing in ERISA indicates that a named fiduciary appointing a trustee does not have to adhere to any limitations that the trust agreements place on the total number of trustees.
Therefore, the trust agreements control the appointment of the HVDC Funds' trustees, and the issue in this case becomes whether the trust agreements for the HVDC Funds have been properly amended to provide for an eight-member Board. The trust agreements provide that they may be amended at any time by an instrument in writing, executed by the trustees. See Exhibit 8, at 19; Exhibit 17, at 19; Exhibit 21, at 20; Exhibit 26, at 18 (all attached to Gallante Aff.). Each previous amendment to the trust agreements was made in a written document signed by each trustee. See, e.g., Exhibits 9-10, 18-20, 22-25, 27, attached to Gallante Aff. The parties acknowledge that no such document was ever executed expanding the Board of Trustees of the HVDC Funds from four to eight trustees.
Plaintiffs argue nonetheless that the minutes of the Board of Trustees' meetings demonstrate that the Board had resolved to expand its membership and that those minutes are a sufficient written record to constitute an amendment of the trust agreements. Assuming for the moment that plaintiffs' characterization of the minutes is correct, the minutes of the Board meeting at which O'Beirne and Frank were recognized are not signed by anyone, while the minutes of the Board meeting at which Zavattoni and Gallante Jr. were recognized are signed by some of the trustees and purported trustees, but not by all. See Exhibits D, E, attached to Plaintiffs' Sept. 22 Rule 3(g) Statement. Therefore, those minutes do not satisfy the requirement that amendments to the trust agreements must be executed by the Trustees.
Furthermore, the case law does not support plaintiffs' contention that "written minutes of the trustees' meeting and a resolution adopting the amendment are sufficient notwithstanding the lack of an executed amendment to the plan documents." See Plaintiffs' Brief in Support of Motion for Summary Judgment, at 13. The only case that plaintiffs cite in support of this proposition is Huber v. Casablanca Indus., Inc., 916 F.2d 85, 105-06 (3d Cir. 1990), cert. dismissed, 506 U.S. 1088 (1993). The modification procedure outlined in the plan instrument at issue in that case permitted modification "by the Trustees," without specifying any format for amendments. The Third Circuit held that under those circumstances, resolutions increasing the benefits paid to participants that were approved by the Board and recorded in the written minutes of that meeting were valid amendments to the plan instrument. See id. Therefore, Huber stands for nothing more than the unremarkable proposition that amendments to the plan instrument are valid when they are adopted in accordance with the amendment procedures outlined in the plan instrument. It does not support plaintiffs' position that the trust agreements at issue in this case may be amended by a resolution of the Board recorded in unexecuted minutes. Cf. Sigmund Cohn Corp. v. District No. 15 Machinists Pension Fund, 804 F. Supp. 490, 494-95 (E.D.N.Y. 1992) (holding that purported amendment to plan instrument made by Board resolution and recorded in unexecuted minutes was ineffective where trust agreement provided for amendment of plan instrument and trust agreement only by writing executed by trustees).
Plaintiffs base their next argument on a provision in the trust agreements that authorizes the trustees of the HVDC Funds to merge the HVDC Funds with other funds "upon any terms and conditions mutually agreed upon by the Trustees of [the HVDC funds] and such other Fund[s], subject to the provisions of ERISA." Exhibit 8, at 18-19; Exhibit 17, at 19; Exhibit 21, at 19; Exhibit 26, at 17 (all attached to Gallante Aff.). Plaintiffs point out that the trust agreements do not specify that the terms of a merger must be in written form. Plaintiffs assert that when the District Council of Bricklayers and Allied Craftsmen of Westchester & Putnam Counties Funds ("Westchester Funds") agreed to merge into the HVDC Funds on January 1, 1991, the trustees of the two sets of funds agreed orally that the HVDC Funds' Board of Trustees should be expanded to eight members to include individuals who had previously served on the Board of the Westchester Funds.
See Affidavit of Richard O'Beirne, dated Nov. 2, 1995, at PP 2, 5. plaintiffs contend that the trustees of the HVDC Funds amended the trust agreements when they reached this oral agreement.
This argument, while ingenious, cannot circumvent the unambiguous directive in the trust agreements that amendments to those documents must be in writing and executed by the trustees. The trustees of the HVDC Funds may undoubtedly merge the HVDC Funds with other funds on conditions that necessitate amendments to the trust agreements. Nothing in the merger provision, however, releases the trustees from the obligation to follow the required procedure.
Finally, plaintiffs contend that defendants should be equitably estopped from asserting that the Board of Trustees has only four members because defendants failed to object to the purported trustees' participation until March 16, 1994. Indeed, it is undeniable that the purported trustees were treated in every way as if they had been duly appointed. Plaintiffs have not, however, cited a single case in which a court has applied equitable estoppel to preclude a challenge to an individual's status as a trustee.
Plaintiffs argue that we should not permit the individual defendants to profit from their own neglect in failing to prepare a formal amendment to the trust agreements. Plaintiffs' argument ignores, however, the fact that plaintiffs O'Beirne and Frank were also acting as members of the Board of Trustees throughout the period from early 1991 until September 21, 1993. They were equally aware that the Board had taken no formal action. There was no obstacle to amending the trust agreements at any time during that two-year period, as the procedure is quite simple and relations among the members of the Board do not appear to have been marked by the animosity now prevalent. Indeed, the amendment could have been accomplished quite easily if each of the trustees had simply signed the minutes of the meetings at which the four purported trustees were "appointed." Cf. Cohn, 804 F. Supp. at 495. We are not inclined to apply the doctrine of equitable estoppel on plaintiffs' behalf where both plaintiffs and defendants failed to follow the amendment procedures clearly outlined in the trust agreements.
As is apparent from our discussion of this issue, there are no genuine issues of material fact that would preclude the entry of summary judgment. We are confident that the factual record has been fully developed, as the parties have submitted lengthy affidavits and numerous exhibits in support of their arguments. Because the issues raised by plaintiffs' motion are the same ones on which we base our decision, plaintiffs will suffer no procedural prejudice if we grant summary judgment in defendants' favor. Therefore, because the law favors defendants on this issue, we hold that the Board of Trustees of the HVDC Funds is properly composed of four members. Accordingly, we grant summary judgment for defendants on plaintiffs' fourth and fifth claims and on that portion of plaintiffs' sixth claim that relates to defendants' alleged breach of fiduciary duty by obstructing the participation of Frank, O'Beirne, Valente and John Parietti in the activities of the Board of Trustees.
We are well aware of the animosity that has developed between a number of the individual plaintiffs and defendants in this case. We are mindful that as a result of this ruling, the present composition of the Board of Trustees of the HVDC Funds is two plaintiffs--Mosca and Emil Parietti--and two defendants--Mauro and Ciferri. The potential for deadlock, and for continued difficulties in the administration of the HVDC Funds, certainly exists. Nevertheless, there is simply no legal basis for finding otherwise. We strongly encourage the Board members, in the wake of this ruling, to put their differences behind them and to turn their attention to administering the HVDC Funds on behalf of the beneficiaries.
B. Gallante Sr.'s Consulting Contract
Plaintiffs have also moved for summary judgment on their claims challenging the consulting contract between the HVDC Funds and Gallante Sr. Plaintiffs' seventh claim seeks rescission of the contract, an order directing Gallante Sr. to make restitution to the HVDC Funds for all payments made to him under the contract and a judgment declaring that defendants breached their fiduciary duties by awarding the contract and by permitting payments to be made under it. Plaintiffs' eleventh claim seeks an accounting of all payments made under the contract and the imposition of a constructive trust thereon. Under 29 U.S.C. § 1109(a), this court has broad discretion to fashion a remedy for breaches of fiduciary duty. See Marshall v. Snyder, 572 F.2d 894, 901 (2d Cir. 1978); Gilliam v. Edwards, 492 F. Supp. 1255, 1266-67 (D.N.J. 1980).
Section 1106(a) of ERISA provides:
Except as provided in section 1108 of this title: (1) A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect . . . (C) furnishing of goods, services, or facilities between the plan and a party in interest . . . .
Section 1108(b)(2) creates an exception to this provision for "contracting or making reasonable arrangements with a party in interest for . . . services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor." "Party in interest" includes plan administrators, trustees, employees and any persons providing services to the plan. See 29 U.S.C. § 1002(14)(A-B).
The pertinent Department of Labor regulation provides that:
[c] No contract or arrangement is reasonable within the meaning of [ 29 U.S.C. § 1108(b)(2)] . . . if it does not permit termination by the plan without penalty to the plan on reasonably short notice under the circumstances to prevent the plan from becoming locked into an arrangement that has become disadvantageous.
29 C.F.R. § 2550.408b-2(c).
Defendant Gallante Sr.'s contract does not satisfy this requirement. The term of the contract is July 1, 1993, to December 31, 1996--almost three and a half years. There is no provision that permits the HVDC Funds to terminate the contract before the end of that period. See Exhibit C, attached to Plaintiffs' Sept. 22 Rule 3(g) Statement. This arrangement is clearly contrary to the expressed goal of the regulation, which is to prevent a fund from being locked into an arrangement that is no longer beneficial to the fund. The consulting transaction is therefore invalid, if it was caused by a fiduciary of the HVDC Funds.
Defendants contend that the consulting contract does not violate § 1106(a)(1)(C) because Gallante Sr. did not cause this arrangement to occur. Regardless of whether he had a hand in securing this deal, however, the contract is invalid. Cavallaro, Mauro, Ciferri, O'Beirne, Frank, Zavattoni, and Gallante Jr. approved the consulting contract by signing it. Regardless of whether each of these men was a duly appointed trustee, each was purporting to act as a trustee and was, therefore, a fiduciary of the plan. See Mercer, 747 F.2d at 309. Each breached his fiduciary duties by awarding a contract that is, on its face, unreasonable and by permitting the HVDC Funds to make payments under the contract. See Gilliam, 492 F. Supp. at 1264-65. Nonetheless, plaintiffs' claim for relief alleges only that Ciferri, Cavallaro and Mauro breached their fiduciary duties; the actions of O'Beirne, Frank, Zavattoni and Gallante Jr. are not before the court. Accordingly, we grant summary judgment for plaintiffs on that part of their seventh claim that seeks a declaration that Ciferri, Mauro and Cavallaro breached their fiduciary duties to the HVDC Funds by approving this transaction. We also grant summary judgment rescinding the contract and declaring it null and void.
It is less clear, at this time, whether an order of restitution is appropriate. According to defendants, Gallante Sr. is uniquely qualified to assist the Board in administering the HVDC Funds and has provided substantial services since he resigned from the Board of Trustees in June 1993. See Gallante Aff., at P 49; Affidavit of Roderick W. Ciferri, III, dated Oct. 16, 1995, at P 23. The question, then, is whether Gallante Sr. is entitled to compensation for those services rendered or whether he should be ordered to make restitution of any or all of the payments that he has received from the HVDC Funds.
Gallante was indisputably a plan fiduciary when the Board approved the contract because he did not resign from the Board of Trustees until the day after the contract became effective. Therefore, if Gallante Sr. caused the consulting contract to be awarded to himself, he has violated § 1106(a)(1). He has also violated 29 U.S.C. § 1106(b)(1), which states that "[a] fiduciary with respect to a plan shall not . . . deal with the assets of the plan in his own interest or for his own account. . . ." Under those circumstances, we believe that restitution of all payments that he received under the contract might well be the appropriate remedy. See Gilliam, 492 F. Supp. at 1266-67. On the other hand, if Gallante Sr. did not initiate the negotiation of the contract and was not involved in the decision to approve it, he may be entitled to reasonable compensation for services actually rendered to the plan and/or for expenses actually incurred on behalf of the plan. See 29 U.S.C. § 1108(c)(2). The burden is, however, on the individual defendants to prove that any payments made by the HVDC Funds were fair and reasonable. See New York State Teamsters Council Health & Hosp. Fund v. Estate of DePerno, 18 F.3d 179, 183 (2d Cir. 1994).
The existence of a genuine issue of material fact prevents the summary resolution of this issue. The parties disagree as to whether Gallante Sr. initiated the negotiations that led to the consulting contract or whether he was present during the discussion and voting that resulted in the Board's decision to award the contract. Compare Affidavit of Richard O'Beirne, dated Sept. 22, 1995, at P 5; Affidavit of George A. Frank, dated Sept. 21, 1995, at P 6; with Gallante Aff., at PP 44-45; Affidavit of Roderick W. Ciferri, III, dated Oct. 16, 1995, at PP 17-20; Affidavit of Katherine Mattes, dated Oct. 16, 1995, at P 3. Therefore, we deny plaintiffs' motion for summary judgment on their eleventh claim and on that portion of their seventh claim that requests restitution.
C. Dues Check-off Payments
Finally, plaintiffs have moved for summary judgment on their claims relating to dues check-off payments withheld by the defendants. In their ninth claim, plaintiffs seek the imposition of a constructive trust on any dues check-off payments withheld by action of the defendants, an accounting and an order directing payment of those funds to Local 5 and/or the International Union. In their eighth claim, plaintiffs seek punitive damages against the individual defendants. In their tenth claim, plaintiffs seek a permanent injunction prohibiting defendants from interfering in the transmission of dues check-off payments from the HVDC Funds to Local 5 and the International Union. We have jurisdiction over these claims under 29 U.S.C. § 185, which authorizes suits to enforce collective bargaining agreements, and under 29 U.S.C. §§ 1109(a), 1132, which authorize suits for remedial relief against plan fiduciaries.
Under the dues check-off system, union members sign authorization forms permitting the deduction of a percentage of their union dues from their paychecks. As part of the collective bargaining agreement between the local union and the employer, the local union designates the employee benefit funds' administration fund account as the collection agent for the dues check-off monies. Employers may then remit all payroll deductions to that account, lessening the administrative burden on the employers.
The arrangement in this case is no exception to this general rule. The collective bargaining agreements signed by employers and the HVDC provided that:
The Joint Benefit Administration Fund Account of the [HVDC] has been designated as the collection agent for the following funds: . . .
(h) Payroll Deduction Dues Check-off