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Chao v. James C. Docster

March 31, 2006

ELAINE L. CHAO, SECRETARY OF LABOR, PLAINTIFF,
v.
JAMES C. DOCSTER, INC.; DODGE-MARKHAM CO., INC, 401 K PENSION PLAN; ESTATE OF JACK DOCSTER,*FN1 DEFENDANTS.



The opinion of the court was delivered by: Norman A. Mordue, Chief Judge

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

Plaintiff Elaine L. Chao, Secretary of Labor commenced the instant action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., alleging that defendant Dodge-Markham Co., Inc., failed to forward employee and company contributions to its 401(K) pension plan totaling nearly $43,000.00; that defendants James C. Docster and Jack Docster, trustees and fiduciaries of the pension plan, failed to discharge their fiduciary duties with respect to the pension plan and that defendants are jointly and severally liable for said violations under ERISA.

Plaintiff now moves for summary judgment on the amended complaint pursuant to Fed.R.Civ.P. 56. Defendants James C. Docster and Jack Docster oppose said motion.

II. FACTUAL AND PROCEDURAL BACKGROUND

According to the amended complaint, from March 1995 and thereafter the Dodge-Markham 401(K) pension plan was an employee benefit plan within the meaning of ERISA. The pension plan was established to provide benefits to Dodge-Markham employees and the employees of its subsidiaries. The pension plan was a contribution plan funded by employee salary deferrals and employer contributions. The terms of the pension plan required employee salary deferrals to be paid to the pension plan no later than 90 days after the receipt of the contribution. Plaintiff asserts that when Dodge-Markham began to experience financial difficulties in or about 1995, its President, James Docster started retaining some employee contributions rather than forwarding them to the pension plan. Plaintiff asserts that James Docster was involved in systematic "juggling" of company cash insofar as deciding which bills and financial obligations to pay as funds became available. Included in said "juggling" were contributions owed to the company's 401(K) plan. Plaintiff contends that Jack Docster, a former president of Dodge-Markham and its CEO, Secretary and Chairman of the board of directors, participated in this "juggling" of company cash which included failing to make contributions to the retirement plan as required by ERISA. In or about late spring or early summer of 1999, Jack Docster became aware of the grave nature of the company's financial condition and resumed his status as company president. Plaintiff alleges that James and Jack Docster failed to discharge their fiduciary duties with respect to the pension plan and caused the pension plan to engage in certain transactions that violated ERISA, all in violation of ERISA. It is undisputed that funds owed to the retirement plan were withheld and never repaid by the time the company became defunct in 2001. What is disputed is the nature and fact of the fiduciary duty, if any, owed by each defendant and the extent to which each defendant may have breached said duty.

Defendant Jack Docster had been the president and CEO of Dodge-Markham until his limited retirement in 1992 or 1993 at which time his son, James Docster, took over as president and a Member of the board of directors of the company. Although James Docster asserts that his father "was always in charge of the company," see Response to Statement of Material Facts by James Docster, ¶ 20, during all times relative to this action, he does not seriously dispute plaintiff's contentions that he ran day-to-day operations of the company from the date of his father's retirement until he was relieved of his duties on April 30, 1999. See Response to Statement of Material Facts by James Docster, Affidavit of James Docster and Reply Affidavit of James Docster. James Docster also does not dispute that he was a trustee and fiduciary of the subject 401(K) plan until the afore-referenced date. James Docster's factual disputes with plaintiff center on his liability under ERISA for actions or inactions taken in connection with the retirement plan after April 30, 1999.*fn2

With respect to the position, actions or inactions of Jack Docster during the relevant period, the Court notes the following facts taken from his deposition testimony, from his response to plaintiff's Local Rule 7.1(f) Statement of Undisputed Material Facts and from an affidavit submitted in opposition to plaintiff's summary judgment motion: Following his limited "retirement" as president, Jack Docster maintained his status as CEO and Corporate Secretary of Dodge-Markham as well as his title as Chairman of the board of directors. See Response to Statement of Material Facts by Jack Docster, ¶ 10. Defendants Jack and James Docster were the sole shareholders of Dodge-Markham. When James became President of the company, he owned most of the common stock, but Jack Docster retained a controlling majority of the company's voting shares. See Deposition of Jack Docster, at p. 74-75. In or about 1995, Jack Docster suggested to his son that he "look into a 401(K)" for Dodge-Markham since the prior company plan had been dissolved upon Jack's retirement. Deposition of Jack Docster, pp. 7, 12-14. James Docster contacted the Bay Ridge Group which administered the company's health insurance coverage and made the arrangements to implement a new 401(K) plan. See id. at p. 7. Thereafter, James Docster kept Jack Docster "generally . . . up to date on what he was doing with respect to establishment of the 401(K) plan." See id. Both Jack and James Docster were named as Trustees in the Adoption Agreement by which the Dodge-Markham retirement plan was implemented. See Affidavit of Jack Docster at ¶ 36, see also Exhibit 1 marked during depositions of Jack and James Docster, attached as Exhibit D to Declaration of Jennifer Weekley, Esq., filed in support of plaintiff's motion.*fn3 Upon establishment of the plan, Jack Docster "thought" that "the employer . . . was the administrator, of course, with the help of the Bay Ridge Group." Deposition of Jack Docster, p. 8. Insofar as the "employer's duties . . . as administrator," Jack Docster believed Dodge-Markham should "see to it that the employees' contributions were made, payroll deductions were made, and the company's contributions were made." Id. However, Jack Docster averred that he personally was not a trustee of the new Dodge-Markham retirement plan while James was running the company, see id. at p. 22, nor was he familiar with what the company was doing in regard to its position as administrator of the plan. Id. at 8. The reasons for this were multiple according to Jack Docster. First, he was not allowed to participate in the plan since he was over age 70. See id. at p. 9. Secondly, Jack Docster testified that he was "busy with other things" such as "the running of the shop" and the company's "lack of finances." Id.

Upon his retirement, though he lived in Florida during the winter months, Jack Docster continued to reside in Binghamton, New York for seven or eight months each year. See Deposition of Jack Docster, p. 5. When he was not in Florida or traveling, Jack Docster generally went to the Dodge-Markham offices and shop every day. See id. Jack Docster also continued to collect a salary for his continued involvement in Dodge-Markham affairs. See id. at p. 6. He "worked with Jamie [James Docster]," signed checks, including contribution checks to the retirement plan, when James was "too busy," spent time in the shop, and assisted James in "juggling" the company cash flow to meet financial obligations. See id. at p. 6, 28, 32-33.

According to Jack Docster, this "juggling" of available funds occurred in the following manner: the company comptroller would prepare checks owed to various company creditors and James kept these checks in his office. See id. at p. 32-33. Then "[b]oth Jamie and I together decided what we call juggling . . . the two of us on occasion - - sometimes he [James] would decide and sometimes the two of us would get together and decide based on the amount of money that would come in that particular day" which of the creditors to pay and which not to pay. See id. Jack Docster conceded during his deposition that this "juggling" "might very well" have included contribution checks payable to Bay Ridge Group. See id.*fn4

When Jack Docster was living in Florida, he maintained regular contact with Dodge-Markham by telephone and received daily financial summaries which included accounts payable and accounts receivable. See id. at p. 10-11. About every three months, James Docster, would send Jack Docster a printout or breakdown of the specific accounts payable by the company. See id. at p. 11. At some point in 1998 or 1999, Jack Docster recalled seeing in the accounts payable information that Dodge-Markham owed money to Bay Ridge Group. See id. at p. 11-12. When Jack Docster saw this, he called James Docster "and asked him what was going on, and he said he was taking care of it." See id. at p. 12.*fn5 However, Jack Docster did not follow up with James to find out if he had indeed "taken care of it" as promised. Id. at 77. Starting in December 1998, paychecks issued to Jack Docster by Dodge-Markham were returned for insufficient funds. See Affidavit of Jack Docster, ¶ 18.

Jack Docster returned to Binghamton in early May 1999, and "took over the running of the company" from James, see Deposition of Jack Docster, p. 4; Affidavit of Jack Docster, ¶ 22, which included disbursement of checks. See Deposition of Jack Docster, ¶ 34. Thereafter, the company comptroller brought checks cut to creditors to Jack Docster. See id. These checks included checks that were "in the pipeline" prior to his taking over the company which had not yet been disbursed. Id.*fn6

During his subsequent investigation concerning the financial problems of the company, Jack Docster learned from talking to his son that Dodge-Markham was having trouble paying its suppliers and could not obtain credit to purchase paper supplies needed to run the business. See Deposition of Jack Docster, p. 29. Over the course of several weeks, Jack Docster averred that he learned that James Docster in recent years had increased his personal salary from $75,000.00 to $150,000.00 to between $250,000.00 and $350,000.00 per year. See Affidavit of Jack Docster, ¶¶ 22-23. Jack Docster also learned that James Docster had failed to remit employee withholding taxes to the IRS and had misappropriated over $1.2 million by preparing false invoices and sending them to the company's lender which would then advance funds on the basis of false accounts receivable. See id. at ¶ 24.

Jack Docster testified that upon taking control of the company back from James, he did know that the Dodge-Markham retirement plan had a trustee and "assumed" it was James because "it was just the two of us . . [t]here was (sic) no other officers." Deposition of Jack Docster, p. 27. However, Jack Docster did not familiarize himself with the duties of 401(K) plan administrator because "there was too much going on for [him] to even look into that." Deposition of Jack Docster, p. 26. In early July 1999, Jack Docster received a letter from the Department of Labor regarding the failure of the company to make contributions to the retirement plan as required by ERISA. See Deposition of Jack Docster, pp. 26, 30-31, 39.*fn7 This letter "surprised" and "disturbed" Jack Docster. Id. at 31. In early July 1999, Jack Docster also met with his son at James' house and told him company ...


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