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Finkel v. Romanowicz

August 11, 2009

GERALD FINKEL, AS CHAIRMAN OF THE JOINT INDUSTRY BOARD OF THE ELECTRICAL INDUSTRY, PLAINTIFF-APPELLANT,
v.
JOSEPH ROMANOWICZ, DEFENDANT-APPELLEE,
WHIFFEN ELECTRIC CO., INC. DEFENDANT.



SYLLABUS BY THE COURT

Appeal from a judgment of the United States District Court for the Eastern District of New York (John Gleeson, Judge). Plaintiff Finkel challenges the District Court's dismissal of its claims against defendant Romanowicz after Romanowicz failed to plead or otherwise defend against plaintiff's complaint and plaintiff moved for a default judgment. According to plaintiff, the District Court erred in (1) holding that Romanowicz, an officer of a company that breached its duty to remit contributions to various ERISA plans of which plaintiff was an administrator, was not liable for breach of fiduciary duty where plaintiff failed to establish defendant's status as an ERISA fiduciary within the meaning of 29 U.S.C. § 1002(21)(A); (2) not conducting a hearing prior to dismissing plaintiff's breach-of-fiduciary-duty claim; and (3) holding that, under section 3-403(2)(b) of New York's Uniform Commercial Code, defendant was not personally liable for checks he signed on behalf of the company that were dishonored due to insufficient funds in the company's checking account. We hold that (1) plaintiff failed to establish defendant's status as an ERISA fiduciary because he did not allege or introduce evidence demonstrating that defendant exercised authority or control over the management of ERISA plan assets; (2) plaintiff was not entitled to a hearing prior to the dismissal of its breach-of-fiduciary-duty claim against defendant, as the record demonstrates that no hearing was necessary and plaintiff did not request one; and (3) the District Court erred in holding that defendant was not personally liable for certain dishonored checks under New York's Uniform Commercial Code, where plaintiff established that the checks did not indicate that defendant signed them in a representative capacity and defendant presented no evidence of an understanding between the parties that he had signed them in a representative capacity.

Affirmed insofar as the District Court held that defendant was not an ERISA fiduciary, and insofar as the District Court did not conduct a hearing before dismissing the breach of fiduciary claim; reversed insofar as the District Court held that defendant was not personally liable for the dishonored checks.

The opinion of the court was delivered by: JOSÉ A. Cabranes, Circuit Judge

Argued: May 8, 2009

Before: CABRANES and WALLACE, Circuit Judges.*fn1

Plaintiff-appellant Gerald Finkel, as Chairman of the Joint Industry Board of Electrical Industry (the "Joint Board"), challenges a May 14, 2007 default judgment entered by the United States District Court for the Eastern District of New York (John Gleeson, Judge) against Whiffen Electric Co., Inc, ("Whiffen") pursuant to sections 502 and 515 of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1132 and 1145, for delinquent contributions of employee benefits but dismissing the Joint Board's claims against defendant-appellee Joseph Romanowicz, a principal of Whiffen. See Finkel v. Whiffen Elec. Co., No. 06-1269, 2007 WL 1395562, at *2 (E.D.N.Y. May 14, 2007). In this appeal, we consider whether (1) Romanowicz was a "fiduciary" of an ERISA benefits plan within the meaning of 29 U.S.C. § 1002(21)(A), so that he may be held jointly and severally liable for the delinquent payments; (2) the District Court erred in not conducting a hearing before dismissing the Joint Board's breach-of-fiduciary-duty claim; and (3) Romanowicz is, under section 3-403(2)(b) of New York's Uniform Commercial Code ("N.Y. U.C.C."), personally liable for dishonored checks tendered to the Joint Board by Romanowicz to meet a portion of Whiffen's obligations for employee benefit contributions.

BACKGROUND*fn3

The Joint Board is an administrator and fiduciary of several ERISA employee-benefit funds established by collective bargaining agreements between Local Union No. 3 of the International Brotherhood of Electrical Workers, AFL-CIO ("the Union") and employers supplying electrical services. Whiffen was one such employer at all points relevant to this litigation. Pursuant to one of these collective bargaining agreements with the Union (the "CBA"), Whiffen was obligated to withhold specified portions of employees' wages and, on a monthly basis, remit them to the Joint Board for deposit in several ERISA funds, including a multi-employer cash or deferred arrangement within the meaning of Internal Revenue Code § 401(k), 26 U.S.C. § 401(k) ("the 401(k) Plan").

In September 2004 the Joint Board received two checks from Whiffen bearing Romanowicz's signature, one in the amount of $19,048.48 and the other for $7,383.47, conveyed in accordance with the CBA's terms. However, each was dishonored and returned to the Joint Board due to insufficient funds. In August 2005, the Joint Board received another check from Whiffen, again signed by Romanowicz, this time in the amount of $9,572.98. As with the previous checks, the August 2005 check was dishonored. From August 3, 2005 through October 12, 2005, Whiffen failed to make payments required under the CBA to various ERISA funds administered by the Joint Board. Similarly, from July 6, 2005 through October 12, 2005, Whiffen failed to remit required contributions to the 401(k) Plan.

In March 2006, the Joint Board filed suit against Whiffen and Ramonowicz, alleging that, in violation of 29 U.S.C. § 1145, each had failed to remit timely contributions to the 401(k) Plan and other ERISA plans administered by the Joint Board.*fn4 The Joint Board sought to recover from Whiffen all funds withheld from the 401(k) Plan and other funds owed for the period from August 3, 2005 to October 12, 2005.*fn5 It also sought to impose joint and several liability against Whiffen and Romanowicz for delinquent contributions to the 401(k) Plan under the theory that Romanowicz had withheld contributions in breach of a fiduciary duty.*fn6 Further, the Joint Board averred that, under section 3-403(2)(b) of the N.Y. U.C.C., Romanowicz was personally liable for the dishonored checks.*fn7

Neither Whiffen nor Romanowicz responded to the complaint or otherwise appeared before the District Court to defend the lawsuit brought by the Joint Board. On June 9, 2006, the Joint Board requested that the Clerk of the Court enter defendants' default pursuant to Rule 55 of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 55(a) ("When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default."). On the same day, the Joint Board moved for a default judgment against both defendants, arguing that further briefing was not necessary to establish defendants' liability because entry of judgment in their favor would "require[] no findings of fact and there are no disputed questions of law." J.A. 7 (motion for default judgment); see also Fed. R. Civ. P. 55(b)(2) (noting that a district court "may conduct hearings or make referrals . . . to enter or effectuate [a default] judgment").

The District Court noted defendants' default and referred the matter to Magistrate Judge Steven M. Gold to recommend an award of damages. Whiffen and Romanowicz again failed to respond to the Joint Board's allegations.*fn8 After reviewing the complaint and documents submitted by the Joint Board, the Magistrate Judge concluded that the Joint Board had established Whiffen's liability for unpaid contributions to the 401(k) Plan and other benefit funds and recommended an award of $12,341.58 for unpaid contributions to the 401(k) Plan and $106,102.34 for unpaid contributions to other funds. Magistrate Judge Gold also recommended an award of $8,493.95 in interest, $8,493.95 in liquidated damages, and $7,670.28 in attorneys' fees and costs. See 29 U.S.C. § 1132(g)(2) (authorizing awards of unpaid contributions, interest, attorney's fees and costs, and "other legal or equitable relief").

Magistrate Judge Gold recommended dismissal of the Joint Board's claims against Romanowicz. First, the Magistrate Judge concluded that the Joint Board had failed to make out a prima facie case for breach of fiduciary duty against Romanowicz because it had not established that he was a fiduciary of the 401(k) Plan. Second, Magistrate Judge Gold reasoned that Romanowicz was not personally liable under the N.Y. U.C.C. for the dishonored checks because, in the Magistrate Judge's view, the parties "likely" understood that Romanowicz signed them in a representative capacity, J.A. 228 (Report and Recommendation), and that the Joint Board had "offered no evidence, nor made any assertions of fact, suggesting there was not such [an understanding]," id. at 229.

Over the Joint Board's timely objection, the District Court adopted Magistrate Judge Gold's Report and Recommendation, holding that the Joint Board had failed to establish Romanowicz's alleged fiduciary status because the Board did not demonstrate Romanowicz's exercise of authority over 401(k) Plan assets. See Finkel, 2007 WL 1395562 at *1. After noting that the Joint Board characterized Magistrate Judge Gold's second conclusion as "clearly erroneous," the District Court agreed with the Magistrate Judge's ...


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