UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
February 2, 2010
TRUSTEES OF THE PLUMBERS LOCAL UNION NO. 1 WELFARE FUND, ADDITIONAL SECURITY BENEFIT FUND, VACATION & HOLIDAY FUND, TRADE EDUCATION FUND AND 401(K) SAVINGS PLAN, TRUSTEES OF THE PLUMBERS AND PIPEFITTERS NATIONAL PENSION FUND, TRUSTEES OF THE INTERNATIONAL TRAINING FUND AND GEORGE W. REILLY, AS BUSINESS MANAGER OF LOCAL UNION NO. 1 OF THE UNITED ASSOCIATION OF JOURNEYMEN AND APPRENTICES OF THE PLUMBING AND PIPEFITTING INDUSTRY OF THE UNITED STATES AND CANADA, PLAINTIFFS,
MANHATTAN PLUMBING CORP. AND HENRY PLEMPER, DEFENDANTS.
The opinion of the court was delivered by: Frederic Block Senior United States District Judge
MEMORANDUM AND ORDER
BLOCK, Senior District Judge
Plaintiffs are the trustees of several employee-benefit funds. Pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461, they seek to recover delinquent contributions to the funds from defendants Manhattan Plumbing Corp. ("Manhattan") and Henry Plemper ("Plemper"). Following notation of defendants' default, the Court referred the matter to Magistrate Judge Levy for a report and recommendation on the relief to be awarded.
On October 8, 2009, the magistrate judge issued a Report and Recommendation ("R&R") recommending that judgment be entered against Manhattan only in the amount of $64,970.51, that both defendants be enjoined from disposing of Manhattan's assets, and that both defendants allow plaintiffs to audit Manhattan's books. Plaintiffs timely objected the R&R, challenging only Magistrate Judge Levy's recommendation that Plemper not be held individually liable for the money judgment. Reviewing that issue de novo, see 28 U.S.C.§ 636(b)(1), the Court adopts the R&R with one exception.
Plaintiffs offered two theories of individual liability to Magistrate Judge Levy: (1) that the relevant collective bargaining agreements ("CBAs")*fn1 imposed individual liability, and (2) that Plemper was individually liable as a fiduciary of the funds under ERISA. Although the magistrate judge recommended rejecting both theories, plaintiffs challenge the recommendation only with respect to the latter.
Under ERISA, "a person is a fiduciary with respect to a plan to the extent ... he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets." 29 U.S.C. § 1002(21)(A). The Second Circuit recently held that a fiduciary liability claim requires the plaintiff to show "that (1) the unpaid contributions were plan assets and (2) [the defendant] exercised a level of control over those assets sufficient to make him a fiduciary." In re Halpin, 566 F.3d 286, 289 (2d Cir. 2009). The circuit court further held that "in the absence of provisions to the contrary in the relevant plan documents, unpaid contributions are not assets of the plan." Id. at 287.
Before applying Halpin, Magistrate Judge Levy noted that plaintiffs had alleged fiduciary liability with respect to some funds (the "Local 1 Funds"), but not others (the Plumbers and Pipefitters National Pension Fund, or "PPNPF," and the International Training Fund, or "ITF"). See R&R at 15. That observation is borne out by the record: The complaint alleges that "defendant Plemper was a fiduciary of the Local 1 Funds," Compl. ¶ 64; there is no corresponding allegation for the PPNTF or the ITF.*fn2
Plaintiffs concede their error , but argue that "Plemper was not prejudiced in any way by that omission" because "[t]he Complaint unambiguously placed Plemper on notice that all of the Funds, including the PPNPF and ITF, were seeking to hold him personally liable." Pls.' Objection to R&R at 9 (citing Compl. ¶¶ 42, 47, 53, 58). The allegations cited, however, deal only with plaintiffs' theory that Plemper is individually liable under the terms of the CBA.
In the context of a default judgment, plaintiffs' omission is not, as they contend, a "technical issue concerning the pleadings." Id. There is no support for the proposition that a defaulting defendant admits allegations which could have been made, but were not. Cf. Kucher v. Alternative Treatment Ctr., 2009 WL 1044626, at *4 (E.D.N.Y. Mar. 27, 2009) ("It would be improper to enter default judgment on the Amended Complaint, which defendants have no notice of, based on what may have been a tactical decision to ignore the poorly pled Original Complaint."). Accordingly, the Court agrees with the magistrate judge that plaintiffs are not entitled to a judgment holding Plemper individually liable for delinquent contributions to the PPNPF and ITF.
With respect to the Local 1 Funds, Magistrate Judge Levy recognized that the declarations of trust creating the funds "clearly state" that the funds' assets include "sums of money that . . . are due and owing to the Fund by the Employers as required by the Collective Bargaining Agreements." R&R at 15 (citations and internal quotation marks omitted). He then found, however, an inconsistency between the trust declarations and the BTA, which describes unpaid contributions, not as assets, but as "monies owing," "fringe benefits and contributions," and "payment[s]." Id. at 16 (citing BTA at 13-14). In addition, the BTA provides that a default in the payment of contributions will be "considered the same as failure to pay wages." Id. (quoting BTA at 14). Citing a provision of the BTA providing that its terms controlled in cases of inconsistency, see BTA at 70, the magistrate judge concluded that plaintiffs had failed to establish that unpaid contributions to the Local 1 Fund were assets of the funds.
The Court perceives no inconsistency between the trust declarations and the BTA. The BTA creates the obligation to pay and, therefore, quite sensibly describes the required contributions as such. Conceptually speaking, nothing precludes "contributions," "payments" or sums of "monies owing" from being deemed assets of a trust fund. Indeed, the trust declarations define the assets of the Local 1 Funds using very similar terminology, i.e., "sums of money that . . . are due and owing." Nor is the provision of the BTA treating the failure to make contributions as a "failure to pay wages" inconsistent with the trust declarations; the provision's effect is limited to prohibiting union members from working for the defaulting employer. See BTA at 14 ("[The failure to pay fringe benefits] shall be considered the same as failure to pay wages, and all Employees shall not be permitted to work for any Employer who is delinquent in payment of fringe benefits."). Thus, the Court concludes that the BTA does not trump the plain language of the trust declarations defining "assets" to include contributions due and owing.
The second element of the Halpin test -- that the defendant "exercised a level of control over those assets sufficient to make him a fiduciary," 566 F.3d at 289 -- is easily satisfied by plaintiffs' allegations -- now deemed admitted -- that Plemper "exercised operational control of Manhattan," "was responsible for deciding whether to pay benefit contributions to the Local 1 Funds, and "caused the defendant Manhattan to use [the] withheld assets for purposes other than making contributions to the Local 1 Funds." Compl. ¶¶ 62-63. See Pension Ben. Guar. Corp. v. Solmsen, 671 F. Supp. 938, 944-45 (E.D.N.Y. 1987) ("[m]ost significant" factor is whether defendant "was responsible for authorizing and making payments to the Plan").
In sum, the Court concludes that plaintiffs have established that Plemper is individually liable as a fiduciary with respect to the Local 1 Funds, but not with respect to the PPNPF or the ITF. Such liability includes unpaid contributions, interest, liquidated damages, attorney's fees and costs. See 29 U.S.C. § 1132(g)(2).*fn3
Even in the absence of an objection to an R&R, the Court may conduct de novo review if it appears that the magistrate judge may have committed plain error. See Spence v. Superintendent, Great Meadow Corr. Facility, 219 F.3d 162, 174 (2d Cir. 2000). As no such error appears here, the Court adopts the remainder of the R&R without de novo review.
Magistrate Judge Levy's R&R is adopted as modified. Accordingly, the Clerk is directed to enter judgment as follows:
1. Plaintiffs are awarded $42,748.92 in unpaid contributions and wage deferrals, $4,147.94 in interest, $8,057.97 in liquidated damages, $9,420.78 in attorney's fees, and $594.90 in costs, for a total of $64,970.51.
2. Defendants shall be jointly and severally liable for $59,025.93 of the judgment amount. Defendant Manhattan Plumbing Corp. shall be solely liable for the remainder of $5,944.58.
3. Defendants are permanently enjoined from selling, transferring or otherwise disposing of the assets of defendant Manhattan Plumbing Corp., outside the ordinary course of business, without court approval or plaintiffs' express, written consent.
4. Defendants shall allow plaintiffs to audit the general and specific books and accounts, including supporting documentation, of defendant Manhattan Plumbing Corp.