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Janese v. Fay

October 21, 2010

DOUGLAS A. JANESE, ET AL., PLAINTIFFS,
v.
DAVID A. FAY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: John T. Curtin United States District Judge

This action was filed on June 26, 2009, by three present and/or former participants and beneficiaries of the Niagara-Genesee & Vicinity Carpenters Local 280 Pension Fund and the Niagara-Genesee & Vicinity Carpenters Local 280 Welfare Fund (collectively, the "Local 280 Funds" or the "Funds")*fn1 seeking declaratory, injunctive, and monetary relief against twelve former Trustees and two former Plan Managers of the Funds for breach of fiduciary duties in violation of Sections 502(a)(2) and (a)(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1132(a)(2) and (a)(3). Defendants have moved to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted (see Item 10).

BACKGROUND

As alleged in the complaint, this is a "derivative action" brought by plaintiffs Douglas Janese, Christopher Shakarjian, and Louis D'Aurizio on behalf of the participants and beneficiaries of the Local 280 Funds to recover assets alleged to have been wrongfully depleted as the result of various fiduciary breaches on the part of twelve individual former Trustees and two former Plan Managers between November 1993 and December 2007. Many of these same individuals, both plaintiffs and defendants, were named as parties in a previous lawsuit in this court, LaScala, et al. v. Scrufari, et al., No. 93-CV-982 (JTC), involving claims of breach of fiduciary duty under ERISA based in substantial part upon conduct and circumstances which form the basis for the allegations in the complaint in this action. See LaScala v. Scrufari, 2006 WL 469404 (W.D.N.Y. Feb. 27, 2006), rev'd, 479 F.3d 213 (2d Cir. 2007), on remand to 2010 WL 475284 (W.D.N.Y. Feb 5, 2010).*fn2 In their complaint, plaintiffs have pleaded a total of fourteen causes of action in nine counts against the former Trustees and Plan Managers of the Funds. The Trustees are identified as members of four separate Trustee groups, as follows:

1. Trustees for the period July 13, 2006*fn3 through December 31, 2007 (referred to by plaintiffs as the "2006-2008 Trustees"), identified as David A. Fay, Angelo Massaro. Dominic P. Massaro, George R. Weidert, Christopher M. Scrufari, David J. Knapp, Thomas P. Hartz, John J. Fuchs, Patrick Morin, and John J. Simmons.

2. Trustees for the period January 26, 1999 through July 12, 2000 (the "2000 Trustees"), identified as Mr. Fay, Mr. Weidert, Mr. Hartz, Angelo and Dominic Massaro, Robert P. Williams, Christopher Scrufari, David Knapp, and Gordon J. Knapp.

3. Trustees for the period January 20, 1994 through January 25, 1999 (the "1994-1998 Trustees"), identified as Fay, Weidert, Williams, Angelo and Dominic Massaro, Christopher Scrufari, David Knapp, and Gordon Knapp.

4. Trustees for the period November 1993 through January 19, 1994 (the "December 1993 Trustees"), identified as Gordon Knapp, Fay, Angelo and Dominic Massaro, Weidert, and Hartz.

Item 1, ¶¶ 14-17. The two Plan Managers are identified as Santo S. Scrufari, who served from March 1985 through July 14, 1996, and his immediate successor (and son), Russell P. Scrufari, who served through December 31, 2008.

In Count I of the complaint, plaintiffs allege that the 2006-2008 Trustees breached their fiduciary duty of loyalty to active Pension Plan participants and Welfare Fund beneficiaries by twice reducing future benefit accruals to address approximately $27 million in "unfunded accrued liability"*fn4 resulting from retroactive benefit increases which were previously adopted by the 1994-1998 Trustees. As set forth in the complaint, the first reduction of future accruals took place effective July 1, 2004, and the second took place effective July 1, 2006, ultimately resulting in the reduction of the active participants' monthly benefit rate for years of credited service from $113.40 to $50.00. Plaintiffs claim that since the funding deficiency which necessitated the reductions in future benefit accruals was the direct result of the actions taken by the 1994-1998 Trustees, the 2006-2008 Trustees should have prospectively reduced benefits then being paid to retirees instead of reducing the value of the pension benefits to be paid in the future to active Plan participants. Plaintiffs also allege that "[t]he 2006-2008 Trustees and their predecessors fraudulently concealed this developing funding problem, or at least the magnitude and cause thereof, from the Plan's participants and beneficiaries." Item 1, ¶ 24.

Count II more directly addresses the retroactive monthly benefit rate increases adopted by the 1994-1998 Trustees. Plaintiffs allege that, by increasing the rates five times between May 12, 1994 and August 13, 1998, the Trustees greatly enhanced the benefits being paid out to the older active Plan participants (including the Trustees themselves and the Plan Manager, Santo Scrufari) to the detriment of younger participants (including plaintiffs). According to the complaint, these actions on the part of the Trustees and Santo Scrufari constitute a breach of the fiduciary duty to preserve the Fund's assets to satisfy future pension claims, as well as the duty to take impartial account of the interests of all participants and beneficiaries of the Plan. See id. at ¶¶ 32-41.

In Count III, plaintiffs allege breach of fiduciary duty on the part of the December 1993 Trustees as the result of actions taken at a "secret meeting" held on December 31, 1993, which allowed previously adopted benefit increases to become effective one year earlier in order to enhance the pension of retired Plan participant Arthur Marinucci (a relative of Angelo and Dominic Massaro). Plaintiffs further allege that the 1993 Trustees fraudulently concealed this action by failing to provide notice or explanation under ERISA's reporting and disclosure requirements. See id. at ¶¶ 44-52.

In Count IV, plaintiffs allege that the 1994-1998 Trustees breached their fiduciary duty by voting at a meeting on November 12, 1998 to approve a one-time "break in service forgiveness rule," which resulted in the restoration of 4.8 years of credited service to defendant Gordon Knapp, and fraudulently concealed this approval by failing to provide notice or explanation under ERISA's reporting and disclosure requirements. See id. at ¶¶ 53-59.

In Count V, plaintiffs allege that the 2000 Trustees breached their fiduciary duty by voting at a meeting on May 18, 2000 to approve an alternative service eligibility rule specifically designed to benefit defendant David Fay. See id. at 60-63.

In Count VI, plaintiffs allege that at some unspecified time prior to January 1, 2008, the 2006-2008 Trustees breached their fiduciary duty by authorizing an ad hoc increase of Mr. Fay's monthly retirement benefit, and fraudulently concealed this action by failing to provide notice or explanation under ERISA's reporting and disclosure requirements. See id. at ¶¶ 64-66.

In Count VII, plaintiffs allege that for a number of years during his tenure as Plan Manager through July 14, 1996, Santo Scrufari fraudulently "weighted" his and Gordon Knapp's pension benefit accruals, and concealed this action by altering his and Knapp's pension credit records. See id. at ¶¶ 67-70.

In Count VIII, plaintiffs allege breach of fiduciary duty on the part of Santo Scrufari based on his withdrawal of unauthorized Welfare Fund benefits when he retired as Plan Manager in 1996, and then concealed these withdrawals by reporting them as "Scholarship" or Health Care" benefits (for which he was not eligible). Plaintiffs further allege that Russell Scrufari and the 1994-1998 Trustees breached their fiduciary duties by approving these withdrawals. See id. at ¶¶ 71-77.

Finally, plaintiffs allege in Count IX that Russell Scrufari expanded this "Scholarship Benefits fraud" scheme to provide unauthorized Welfare Fund benefits to defendant Gordon Knapp and others, and that this scheme was approved by the 1994-1998 Trustees, and later by the 2000 Trustees. See id. at ¶¶ 78-84.

Defendants have moved pursuant to Rule 12(b)(6) to dismiss the complaint for failure to state a claim upon which relief can be granted, based on the following grounds:

1. Plaintiffs have failed to allege that they adequately represent the interests of other plan participants and beneficiaries, as required for a derivative action brought under ERISA.

2. The conduct complained of in Counts I through V on the part of the various trustee groups--amendment of a pension plan--is not an exercise of fiduciary duty actionable under ERISA.

3. The claims alleged in Counts I through V and Counts VII through IX are barred by the statute of limitations applicable to actions seeking relief for breach of fiduciary duty under ERISA.

4. The facts alleged in Count VI fail to state a plausible claim for relief under ERISA.

5. The Empire State Carpenters Funds are not proper defendants. Each of these grounds is discussed in turn.

DISCUSSION

A. Rule ...


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