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CEMENT AND CONCRETE WORKERS DIST. v. FRASCONE

September 24, 1999

CEMENT AND CONCRETE WORKERS DISTRICT COUNCIL WELFARE FUND, PENSION FUND, LEGAL SERVICES FUND AND ANNUITY FUND AND THOMAS MADERA, IN HIS FIDUCIARY CAPACITY AS ADMINISTRATOR OF THE CEMENT AND CONCRETE WORKERS DISTRICT COUNCIL WELFARE FUND, PENSION FUND, LEGAL SERVICES FUND AND ANNUITY FUND, AND CHARLES DOLCIMASCOLO, AS PRESIDENT OF THE CEMENT AND CONCRETE WORKERS DISTRICT COUNCIL, PLAINTIFFS,
v.
ANTHONY FRASCONE, CONTRACTORS CASUALTY AND SURETY COMPANY, TRATAROS CONSTRUCTION, INC., AND SEABOARD SURETY COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Glasser, District Judge.

MEMORANDUM and ORDER

BACKGROUND

Plaintiffs are four pension and benefits funds (the "Funds") maintained on behalf of the members of the Cement and Concrete Workers District Council (the "Union"), together with Thomas Madera, in his fiduciary capacity as the administrator of those funds, and Charles Dolcimascolo, President of the Union. On November 12, 1997, plaintiffs brought suit to recover contributions to the Funds owed under collective bargaining agreements with Sovereign Building Corp., and Anthony Frascone, as principal of Sovereign (the "Agreements").*fn1

In their Complaint, Plaintiffs assert a claim against Frascone under Section 502(g)(2) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(g)(2), for unpaid benefit contributions, plus statutory damages and interest, attorneys' fees, and costs.*fn2 (Complaint at ¶ 19.) Plaintiffs also assert a claim against Contractors Casualty and Surety Company ("CCSC") based on a surety bond issued by Contractors Casualty in favor of Sovereign in the amount of $10,000, insuring Sovereign's obligations to contribute to the Funds under the Agreements.*fn3 Finally, plaintiffs assert claims against Trataros Construction, Inc., and Seaboard Surety Company, based on the provisions of a surety bond issued by Seaboard, which will be discussed below. Trataros was the general contractor on a public improvement contract with the New York City Housing Authority for the rehabilitation of the Williamsburg Housing Project in Brooklyn, New York. Sovereign was a subcontractor with Trataros on that project, and it was for the purpose of fulfilling obligations under that subcontract that Sovereign entered into the Agreements (to which, however, neither Trataros nor Seaboard was a party).

Trataros and Seaboard advance several defenses. First, they argue that plaintiffs' claims against them are premised on a provision of the New York State Finance Law that is subject to preemption under ERISA. They also assert a lack of subject matter jurisdiction inasmuch as the ERISA-derived federal question in the case has either been defaulted (due to Frascone's failure to appear), or has been rendered moot (due to an anticipated settlement with Frascone's surety, CCSC).*fn4 Defendants argue further that even absent a finding of preemption, and assuming jurisdiction is retained, they have defenses based on the Union's breach of the Agreements, and the plaintiffs' failure to give timely notice of deficiencies accruing under the first of the Agreements.

Plaintiffs here move for summary judgment on their claims against Trataros and Seaboard.*fn5 Defendants Trataros and Seaboard cross-move for summary judgment dismissing plaintiffs' claims against them.

DISCUSSION

I. Threshold Questions of Law

A. ERISA Preemption

Plaintiffs cite two decisions by the Second Circuit, and one Memorandum and Order of this Court relying on those decisions, in support of the proposition that surety bond claims are not preempted by ERISA. See Bleiler v. Cristwood Const., Inc., 72 F.3d 13 (2d Cir. 1995); Greenblatt v. Delta Plumbing & Heating Corp., 68 F.3d 561 (2d Cir. 1995); Cement and Concrete Workers District Council Welfare Fund v. DeGaetano Const., Mem. and Order, CV-94-3604 (E.D.N.Y. Mar. 6, 1996) (Glasser, J.). Defendants rely primarily on three more recent Second Circuit decisions finding separate sections of the New York Lien Law preempted under ERISA, and urge this Court to extend the reasoning of those decisions to the provision of the New York State Finance Law that, they insist, is operative in this case. See EklecCo v. Iron Workers Locals 40, 361, & 417 Union Sec. Funds, 170 F.3d 353 (2d Cir. 1999); Plumbing Ind. Bd. v. E.W. Howell Co., 126 F.3d 61 (2d Cir. 1997); Romney v. Lin, 105 F.3d 806 (2d Cir.), cert. denied, 522 U.S. 906, 118 S.Ct. 263, 139 L.Ed.2d 189 (1997).

The parties present different theories of the legal basis for plaintiffs' claims against Trataros and Seaboard. As plaintiffs see it, those claims stem from the provisions of a 1993 surety bond (the "Bond"), issued by Seaboard in favor of the New York City Housing Authority, whereby Seaboard undertook to guarantee the payment of

  all lawful claims for wages and compensation for
  labor performed and services rendered by all persons
  engaged in the prosecution of the [Williamsburg
  Housing Project rehabilitation] . . . whether such
  persons be agents, servants or employees of the
  Principal [viz., Trataros] or of any such
  Subcontractor [to whom Work under this Contract is
  sublet].

(Plaintiffs' Rule 3(g) statement, attaching the Bond as Exhibit A thereto.) Plaintiffs also draw attention to the Bond's definition of proper claimants under the broad substantive provision just quoted:

  All persons who have performed labor, rendered
  services or furnished materials and supplies, as
  aforesaid, shall have a direct right of action
  against the Principal and his, it or their successors
  and assigns, and the Surety herein or against either
  or both or any of them and their successors and
  assigns. Such persons may sue in their own name, and
  may prosecute the suit to judgment and execution
  without the necessity of joining with any other
  person as party plaintiff.

Id. Submitting that they have standing under these contractual provisions "in their own behalf and in their representative capacity" as persons who performed labor and rendered services for Sovereign, as subcontractor to Trataros, plaintiffs argue that they are proper claimants under the terms of the Bond, and that the Bond makes Trataros and Seaboard guarantors of Sovereign's and Frascone's obligations under the Agreements. (Plaintiffs' Rule 3(g) Statement at ¶ 13.)

Defendants Trataros and Seaboard reject the contention that the sole basis of plaintiffs' claims is the Bond. Asserting that the Bond was issued pursuant to the specific mandate of New York State Finance Law § 137, defendants insist that it is § 137, and not the Bond standing alone, that confers a cause of action upon plaintiffs. State Finance Law § 137 requires the posting of payment bonds on public works projects "guaranteeing prompt payment of moneys due to all persons furnishing labor or materials to the contractor or his subcontractors." State Finance Law § 137(1). The law further defines the expression "moneys due to persons furnishing labor to the contractor or his subcontractors" to include:

  all sums payable to or on behalf of persons
  furnishing labor to the contractor or his
  subcontractors, for wages, health, welfare,
  non-occupational disability, retirement, vacation
  benefits, holiday pay, life insurance or other
  benefits, payment of which is required pursuant to
  the labor law or by the contract in connection with
  which the bond is furnished or by a collective
  bargaining agreement between organized labor and the
  contractor or subcontractor, and which are computed
  upon labor performed in the prosecution of the
  contract. A trustee or other person authorized to
  collect such payments shall have the right to sue on
  the payment bond in his own name and subject to the
  same as if he were the person performing the labor
  upon which such sums are computed.

Id. at § 137(5)(b).*fn6

Defendants argue, and plaintiffs tacitly concede, that the difference between plaintiffs' and defendants' theories of where the prime locus of the preemption inquiry lies — whether in a surety agreement between Trataros and Seaboard, governed by state law principles of contract and surety law, or, in a statute that confers specific rights of enforcement upon employee benefit plans — marks a crucial point of divergence between the parties. By insisting that the sole basis of its claim against Trataros and Seaboard is the Bond, and indeed by declining even to address the applicability of State Finance Law § 137 to the Bond, plaintiffs argue in effect that the only relevant precedents are, first, this Court's previous determination in facially similar circumstances that there is no ERISA preemption of a claim turning on state surety law and its application to a "non-plan-related contract action," and second, the Second Circuit's decisions in Greenblatt and Bleiler, upon which this Court relied in coming to that determination (neither of which involved consideration of State Finance Law § 137). For their part, defendants argue that recognizing State Finance Law § 137 as the source of plaintiffs' claims makes apparent the close parallels between that provision and those of the New York Lien Law that the Second Circuit found ERISA-preempted in EklecCo and Plumbing Industry Bd., thus compelling the conclusion that State Finance Law § 137 is also subject to ERISA preemption.

We do not share the parties' perception of this threshold issue.*fn7 For the reasons that follow, we find that even if (as we assume it is) the ultimate basis of plaintiffs' claim against Trataros and Seaboard is the enforcement mechanism of State Finance Law § 137, that provision is not preempted under ERISA, and therefore, presents a state law claim that, for reasons also set forth below, is adjudicable in this Court under principles of pendent jurisdiction.*fn8

We begin with an assessment of the cases. In Greenblatt, the guardians of certain union benefit funds were seeking to recover contributions to those funds from the surety of a bankrupt subcontractor (in other words, from a party in the posture of Contractors Casualty in this case). The Second Circuit held that the funds' action against the surety, pursuant to "state surety law," presented "but a `run-of-the-mill state law claim[],' similar to tort or non-plan-related contract actions to which ERISA plans may be a party." Greenblatt, 68 F.3d at 574 (quoting Mackey v. Lanier Collection Agency & Serv., 486 U.S. 825, 833, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988)). The Court reasoned that although the funds' claim on the surety bond "`obviously affect[ed] and involv[ed] ERISA plans'" it did not "conflict with any enforcement mechanism specified in ERISA," inasmuch as "surety law does not touch upon any rights or ...


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