The opinion of the court was delivered by: Spatt, District Judge.
In a prior decision in this case, L.I. Head Start Child Dev. Serv. Inc., et al. v. Economic Opportunity Commission of Nassau County, Inc., et al., 634 F. Supp. 2d 290 (E.D.N.Y. 2009), the Court determined that defendants Economic Opportunity Commission of Nassau County, Inc. ("EOC Nassau"), Economic Opportunity Council of Suffolk County, Inc. ("EOC Suffolk"), Yonkers Community Action Program, Inc. ("Yonkers CAP") (collectively the "agencies"), and John L. Kearse ("Kearse") violated their fiduciary duties under the provisions of the Employee Retirement Income Security Act ("ERISA") by failing to make and ensure the necessary contributions to adequately fund the Community Action Agencies Insurance Group welfare plan ("CAAIG" or "Plan").
At the inception of the damages trial, the Court made the following rulings on the measure of damages:
". . . the plaintiffs have established that the defendants violated their fiduciary duties under the provisions of ERISA by failing to make the necessary contributions to adequately fund the CAAIG Plan.
And of necessity, I am ruling that those damages are:
Number 1, the amount of money that was not contributed in violation of their fiduciary duty. That's number 1. Namely, the unpaid contributions.
Number 2, interest, prejudgment interest on the unpaid contributions.
Number 3, reasonable attorneys' fees.
And number 4, costs of the action."
Further, as to the time period involved, in the Court's prior June 3, 2008 opinion, the Court fixed the applicable statutory time limit as follows:
 ERISA Section 1113(1)(A) directs that a claim for a breach of a fiduciary duty must be brought within six years of "the date of the last action which constituted a part of the breach or violation." According to the testimony of Macaluso, supported by his Report, the first act of diversion occurred in 1995 and the last act was in March 2001. This Complaint was filed on December 13, 2000.
Thus, the Court finds that the plaintiff's "diversion claims" are within the six-year statutory time limit and are not barred by the statute of limitations.
L.I. Head Start Child Dev. Servs. Inc., et al. v. ECON Opportunity Commin. Of Nassau County, Inc., et al., 558 F. Supp. 2d 378, 405 (E.D.N.Y. 2008).
A. The Plaintiffs' Contentions
Based on the testimony of Anthony Macaluso, plaintiffs' expert witness, the plaintiffs presented two alternatives. First, Macaluso testified that the total amount of unfunded contributions due to the Plan from the three defendant agencies for the period from 1993 to June 1998 is $918,273. (Plfts' Ex. D-1). He further computed the allocation of unfunded contributions due from each agency as follows: EOC Nassau $719,008; EOC Suffolk $122,130; and Yonkers CAP $77,135.
Macaluso also calculated an alternative measure of damages to the Plan based on a reserves formula presented by Sedgwick Noble Towndes ("Sedgwick") an actuarial consultant retained by EOC Nassau. Macaluso's alternative written analysis utilizes the Sedgwick formula based on reserves of seven and one-half months. For the 1993 to May 31, 1998 period, the total amount of unfunded contributions owed to the Plan by the three agencies is $787,833. The unfunded contributions due from each agency is: EOC Nassau $569,893; EOC Suffolk $96,802; and Yonkers CAP $61,138.
The plaintiffs also contend that they are entitled to enforce their prior May 25, 2000 judgment against CAAIG. The balance due under this prior judgment due from CAAIG to the plaintiffs is $717,311, ($802,872 less the amount paid of $85,561), with post judgment interest from May 25, 2000. In the prior decision of July 8, 2009, L.I. Head Start, 634 F. Supp. 2d at 316, the Court ruled as to the enforceability of the prior judgment, as follows:
However, with regard to the plaintiffs' remaining two claims, the Court has determined that the defendants in this action are indebted to the CAAIG Plan for (1) failure to make and ensure the necessary contributions to adequately fund the CAAIG Plan; and (2) failure to collect delinquent contributions from EOC Suffolk in the amount of $9,000. CAAIG is in turn indebted to the plaintiffs in the prior action as a result of the May 25, 2000 judgment. Accordingly, upon a proper showing of notice to the judgment debtor CAAIG, of both this action and the petition for collection pursuant to CPLR 5227, the Court will, in its final order of judgment, include a directive that the defendants in this action turn over to the plaintiffs in the prior action, as judgment creditors, sums presently owed pursuant to the May 25, 2000 judgment. RCA Corp. v. Tucker, 696 F. Supp. 845, 850 (E.D.N.Y. 1988).
The plaintiffs also contend, pursuant to the prior ruling of the Court, that they are entitled to reasonable attorneys' fees, prejudgment interest and costs. As to the attorneys' fees, plaintiffs' counsel stated that he will submit his application "subject to the further direction of the Court." (Pltfs' Post Trial Memorandum at 15). As to prejudgment interest, the plaintiffs' request that the Court should apply such interest on each annual amount when due as shown in Macaluso's reports at the end of each fiscal year commencing with the fiscal year which ended on August 31, 1995 and May 31, 1996, August 31, 1997 and June 30, 1998, when the Plan was terminated.
B. The Defendants' Contentions
In sum, the defendants refute all of the plaintiffs' contentions as to
damages, attorneys' fees and prejudgment interest. Among the
defendants' multiple contentions they assert that the plaintiffs
cannot recover as a judgment creditor of CAAIG. The defendants also
contend that "no damages are due under the Trust Agreement, nor were
the Plaintiffs damaged in any way. They are entitled to no more than
nominal damages." (Dfts' Joint Post-Trial Brief at 2).*fn2
Also, primarily because the Court determined the "major
issue" in this case, the alleged diversion of
the L.I. Head Start reserves against the plaintiffs (634 F.Supp. 2d at
310), attorneys' fees and prejudgment interest should not be awarded
to the plaintiffs.
The defendants also object to the Macaluso calculation in which the contributions per year were doubled to determine the amount of annual contributions that he asserted should have been paid by the defendant agencies. The defendants make multiple other objections to the method of computation by Macaluso (see Dfts' Brief at 11 and 12). The defendants also assert that the "Sedgwick Method" was improperly inflated.
As to the statute of limitations, the defendants cite to the Court's June 3, 2008 Decision which states:
". . . the Court finds that there was evidence adduced at the trial that this so-called 'diversion of trust funds' did occur between 1995 and March 2001."
Therefore, say the defendants, all evidence supporting any failure to adequately fund the Plan before 1995 is irrelevant. That includes the plaintiffs attempt to calculate damages back to 1992 and fiscal year ending August 31, 1993. In addition, the defendants contend that any alleged failure to adequately fund the Plan after the termination of CAAIG on June 30, 1998 is irrelevant. So that, according to the defendants, the damages, if any, are limited to a time period from 1995 until June 30, 1998, when CAAIG was terminated.
Further the defendants remind the Court that Macaluso conceded that the defendant agencies complied in all respects with the directive in the Trust Agreement that the Plan's participating agencies "shall make the necessary contributions to provide the benefits expected to become payable under this trust to payers or distributees under any plan."
As to reserves, the defendants point out that William Rowley, the representative of Profile Commercial Corp., employed by CAAIG to review their insurance program, did not testify that the reserves should be calculated by the sum of the prior year's paid claims, administrative expenses, managed care expenses and insurance premiums. Rather, Rowley testified that reserves of one year were a reasonable goal but not a rigid requirement. Also, he testified that the reserves should be ideally sufficient to cover one year of paid claims, not including administrative expenses, managed care expenses and insurance premiums. He also stated that the Plan was in "good condition." In addition, Rowley testified that the required reserves were reduced by the withdrawal of L.I. Head Start from the CAAIG in September 1992, resulting in a reduction of approximately half of the participants. Similarly, it was pointed out that the alternative Sedgwick analysis refers only to claims paid as the basis for future calculations, and not administrative expenses, managed care expenses and insurance premiums.
Also, in regard to the Agency contributions, the defendants contend that as to the claims paid and the amounts in reserve for each year as recorded in the Macaluso charts, "[t]hese contributions were more than necessary to comply with both the Rowley and Sedgwick suggestions." (Dfts' Brief at 14). They point to Macaluso's testimony that the first year that CAAIG was required to increase premiums was 1996 and there was a surplus of $243,436 on June 30, 1998, and that prior to that date, CAAIG had sufficient funds to pay all claims and expenses. The defendants' multiple contributions will be addressed in some detail in the Court's response, which follows.
C. The Court's Response to the Defendants' Contentions
Initially, the Court notes that the defendants again contend that there are no damages because all claims and Plan expenses were paid. Therefore, the defendants assert that they have complied with the obligations in the Trust Agreement to make the necessary contributions to adequately fund the Plan. Again, the defendants raise the issue of their liability to make the necessary contributions to adequately fund the Plan. The Court agrees with the plaintiffs' counsel that this contention ignores the Court's prior liability decision definitely finding that: "the plaintiffs have established, by a preponderance of the evidence, that the defendants EOC Nassau, EOC Suffolk, Yonkers CAP and the Estate of John L. Kearse violated their fiduciary duties under the provisions of ERISA, by failing to make the necessary contributions to adequately fund the CAAIG Plan." (L.I. Head Start, 634 F. Supp. 2d at 316, 317).
Also, the defendants continue to assert that there are no damages at all because all the claims were paid to the beneficiaries in addition to all benefits and administrative expenses. Therefore, argue the defendants there is no loss to the Plan, and consequently, the claim for the defendants' failure to adequately fund the Plan should be dismissed. This argument has been raised by the defendants on several occasions and has been rejected by the Court. The Court's prior rulings were the law of the case; a doctrine that serves to "maintain consistency and avoid reconsideration of matters once decided during the course of a single continuing lawsuit." 18 Wright, Miller and Cooper, Federal Practice and Procedure § 4478 at 788.
As noted above, the defendants contend that "[t]here are no damages arising from defendants' conduct." (Dft's Table of Contents). This contention by the defendants is set forth in nine categories in the Defendants' Joint Post-Trial Brief. In essence, the defendants contend that there are no damages because all the claims and the Plan expenses were paid. According to the defendants, (1) "No damages are due under the Trust Agreement, nor were the plaintiffs damaged in any way." (Dfts' Brief at 2); (2) ". . . there was no dispute that all claims and expenses of the CAAIG were paid throughout its existence." (Dfts' Brief at 4); (3) John L. Kearse resigned as a Trustee and fiduciary of the CAAIG pursuant to a Consent Judgment dated October 5, 1996. (Dft's Brief at 4); (4) the plaintiffs' witness Macaluso conceded that the defendant agencies complied with the Trust Agreement with regard to making the necessary contributions to provide the expected benefits. (Dfts' Brief at 12); (5) the reserves should be ideally sufficient to cover one year's paid claims, rather than the sum of paid claims, administrative expenses, managed care expenses and insurance premiums. (Dfts' Brief at 13); (6) Macaluso conceded that the defendants made all contributions required of them by the Trust Agreement. (Dfts' Brief at 14); (7) "Damages, if any, must be determined pursuant to the provisions of the Trust Agreement", and the overwhelming evidence establishes that the defendant agencies complied with their obligations under the Trust Agreement. (Dfts' Brief at 17, 18); (8) Macaluso had no prior experience or familiarity with procedures to determine an appropriate amount of premiums or reserves. (Dfts' Brief at 20); (9) Macaluso was not an actuary and never performed any expert analysis or testified as to those matters prior to the damages hearing. (Dfts' Brief at 20); (10) "Here, plaintiffs . . . fail to establish damages with the requisite reasonable certainty. (Dft's Brief at 21); (11) "It is self-evident (and conceded by Macaluso) that there were sufficient funds to pay all obligations of the CAAIG; with money still left over at the time of its termination." (Dfts' Brief at 13); (12) "The proof at the damages trial conclusively established that, in fact, there were always sufficient funds in the Plan to pay the medical claims of the employees and the administrative expenses of CAAIG." (Dfts' Brief at 24); and (13) the "exorbitant amounts" claimed by the plaintiffs are unrelated to any credible claims of damages sustained and reflect the "artificial and contrived formulas urged by Plaintiffs." (Dfts' Brief at 26).
The Court will now respond to these numerous contentions by the defendants.
It is a basic rule of law, routinely enforced, that "when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case." Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983). This fundamental rule is to "maintain consistency and avoid reconsideration of matters once decided during the course of a single continuing lawsuit." Devilla v. Schriver, 245 F.3d 192, 197 (2d Cir. 2001). "The doctrine of the law of the case posits that if a court decides a rule of law, that decision should continue to govern in subsequent stages of the same case." Aramony v. United Way of Am., 254 F.3d 403, 410 (2d Cir. 2001) (citations omitted).
However, this doctrine is discretionary and a court "may depart from the law of the case for 'cogent' or 'compelling' reasons including an intervening change in law, availability of new evidence, or 'the need to correct a clear error or prevent manifest injustice.'" Johnson v. Holder, 564 F.3d 95, 99-100 (2d cir. 2009) (quoting United States v. Quintieri, 306 F.3d 1217, 1230 (2d Cir. 2002)). Having reviewed its prior decisions and the arguments put forth by the defendants, the Court holds that the law of the case doctrine is applicable in this case. This rule of law is applicable because the Court properly applied the legal standards in the ERISA and violation of a Trust Agreement causes of action. The Court declines to reopen what has been decided.
Initially, as to the contention that "there is no dispute that all claims and expenses of CAAIG were paid throughout its existence," a review of the record does not reveal that all the Plan claims and expenses were paid. There is no such evidence in this case.
Also, the defendants' assertion that the plaintiffs' case "consisted exclusively of the testimony of Anthony Macaluso" (Dfts' Brief at 5) is not accurate. The record reveals that the plaintiffs' case in this hearing on damages was supported by documentary evidence, including the financial statements of CAAIG and, of importance, the Sedgwick Report dated May 13, 1998.
The defendants also contend that, based on William Rowley's testimony at the trial, "the contributions were adequate to maintain appropriate reserves from 1992 through September 1996." (Dfts' Brief at 13). However, during the liability trial, Rowley testified that "The Plan reserves were significantly reduced for the twelve months of reserves recommended by him." (Tr. at L1059). In addition, Rowley testified that there was a discussion with the CAAIG Board of Trustees where he recommended that the reserves be increased to cover the required twelve months of reserves. (Tr. at L1065).
As to the amount of the contributions to be paid by the agencies each year, the defendants contend that the reserves were limited to one year of paid claims only, not one year of paid claims and expenses. The Trust Agreement does not specify the amount of contributions to be paid by the agencies each year. The Agreement provides that, "The corporations shall make the necessary contributions to provide the benefits expected to become payable under this Trust to payees and distributees under any plan." (Pltfs' Ex. 12). However, the evidence at the trial revealed that the annual required contributions necessary to adequately fund the benefits to be disbursed, include the amount of paid claims and the expenses for the prior year in addition to a reserve for unanticipated claims and increased cost of claims and expenses as a result of inflation. The defendants' own witness, William Rowley, who was an advisor and consultant to CAAIG, whose job involved giving advice "involving the issue of reserves," (Tr. at 1394) testified that the required reserves do include administrative expenses. (Tr. at 1052, 103 and 1056).
A review of the Rowley testimony clearly indicates that the amount of annual contributions needed to adequately fund the Plan is twelve months of the prior year's paid claims and expenses, plus a reserve to the prior year's paid claims and expenses.
The plaintiffs' expert also testified that the Plan must have sufficient reserves to cover the Plan's claims and expenses in order to remain solvent. In addition, the defendants' expert concurred. In the letter from Sedgwick Noble Lowndes to John Kearse dated May 13, 1998, in his premium projections, he stated: "In addition, the Fund operating and claims administrative expenses were factored into the premiums." (Dfts' Ex. D-B).
The defendants challenged the qualifications of Anthony Macaluso to testify as an expert. After an extensive voir dire, the Court ruled that Macaluso was qualified to testify as an expert in this case involving contributions in a health plan even though he had not had actual experience in determining the amount of reserves or premiums in a health plan. The applicable rule was clearly set forth by Judge Scheindlin in Santoro v. Donnelly, as follows:
"Although expert testimony should be excluded if it is speculative or conjectural, or if it is based on assumptions that are so unrealistic and contradictory as to suggest bad faith or to be in essence an apples and oranges comparison, other contentions that are unfounded go to the weight, not the admissibility of the testimony. The question is not whether the engineer is an expert on the exact issues presented in the case, but rather, whether his general engineering experience qualified him to testify in an area in which he does not have extensive experience. 'Where an expert has the education or background to permit him to analyze a given set of circumstances, he can through reading, calculations, and reasoning from known scientific principles make himself very much an expert in the particular product even though he has not had actual experience in its manufacture.'"
340 F. Supp. 2d 464, 473 (S.D. N.Y. 2004) (quoting Lappe v. American Honda Motor Co., 857 F. Supp. 222, 226-227 (N.D. N.Y. 1994).
See also Boucher v. U.S. Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir. 1996) (". . . other contentions go to the weight, not the admissibility of the testimony"); Tyler v. Bethlehem Steel Corp., 958 F.2d 1176, 1188 (2d Cir. 1992) cert. denied 506 U.S. 876, 113 S.Ct. 82, 121 L.Ed.2d 46 (1992).
The Court has already qualified Macaluso as an expert, in the following language:
THE COURT: However, on the issue itself; I find that this witness is qualified for ...