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Enright v. New York City District Council of Carpenters Welfare Fund

United States District Court, Second Circuit

July 1, 2013

PATRICK ENRIGHT, HENRY DIAMOND, JAMES LYNCH, JOHN GORDON, JAMES PATTERSON, EMANUEL PYROS and MIKE ZEMSKI, Plaintiffs,
v.
NEW YORK CITY DISTRICT COUNCIL OF CARPENTERS WELFARE FUND, THE BOARD OF TRUSTEES OF THE NEW YORK CITY DISTRICT COUNCIL OF CARPENTERS WELFARE FUND, JOSEPH EPSTEIN, as EXECUTIVE DIRECTOR OF THE NEW YORK CITY DISTRICT COUNCIL OF CARPENTERS WELFARE FUND, Defendants, THE DISTRICT COUNCIL OF NEW YORK CITY AND VICINITY OF THE UNITED BROTHERHOOD OF CARPENTERS AND JOINDERS OF AMERICA, Defendant-Intervenor.

OPINION AND ORDER

J. PAUL OETKEN, District Judge.

This case concerns the legality of an arrangement whereby dues were paid to a union by way of a welfare fund, as well as the permissibility of changes to that fund that adversely affected retiree participants. Patrick Enright, Henry Diamond, James Lynch, John Gordon, James Patterson, Emanual Pyros, and Mike Zemski ("Plaintiffs") brought this action against New York City District Council of Carpenters Welfare Fund ("the Welfare Fund"), the Board of Trustees of the New York Trustees of the New York City District Council of Carpenters Welfare Fund ("the Trustees"), Joseph Epstein, as Executive Director of the Fund (together, "Defendants") as well as the District Council of New York City and Vicinity of the United Brotherhood of Carpenters and Joinders of America ("the District Council" or "the Defendant-Intervenor"), for violations of the Labor Management Relations Act of 1947, as amended ("LMRA"), 29 U.S.C. 185, et seq., and the Employee Retirement Income Securities Act of 1974 ("ERISA"), 29 U.S.C. 1001, et seq.

Before this Court are cross-motions for summary judgment filed by Plaintiffs, Defendants, and Defendant-Intervenor. For the reasons that follow, those motions are granted in part and denied in part.

I. Background

A. Factual Background

The majority of facts relevant to this action are not in dispute. Unless otherwise noted, the following facts are taken from the parties' Stipulation of Uncontested Facts. (Dkt. Nos. 23-25 ("Stip.").)

1. Parties

Plaintiffs Patrick Enright, Henry Diamond, James Lynch, and John Gordon are retired participants in the Welfare Fund and members of a local union within the District Council, while Plaintiff James Patterson is the former Deputy Director of the Welfare Fund and is also a Welfare Fund participant (together, "the Retiree Plaintiffs").

Plaintiffs Emanual Pyros and Mike Zemski are active participants in the Welfare Fund.

The Welfare Fund is a multiemployer, employee welfare benefit plan within the meaning of Section 3(1) of ERISA, 29 U.S.C. § 1002(1), and a trust fund within the meaning of LMRA Section 302(c)(5), 29 U.S.C. § 186(c)(5).

The Welfare Fund is administered by the Trustees, half of whom are appointed by the District Council ("the Union Trustees") and half of whom are appointed by employer associations that have collective bargaining agreements ("CBAs") with the District Council requiring contributions to the Fund ("the Employer Trustees"). The Trustees are fiduciaries of the Fund, as defined by ERISA Section 21(A), 29 U.S.C. § 1002(A)(1).

Joseph Epstein served as the Fund's Executive Director from July 2011 through July 2012.

The District Council, a labor organization within the meaning of Section 301 of the LMRA, is composed of various local unions whose members are employed as, inter alia, carpenters in New York City and its surroundings.

2. The Welfare Fund and its Trustees

The Welfare Fund provides, inter alia, medical, disability, and vacation benefits to its participants, including both active participants working under CBAs as well as certain retired participants. The Welfare Fund was established pursuant to a trust agreement originally adopted by the District Council and employer associations in the construction industry in 1950. As of June 30, 2011, the Welfare Fund had approximately 25, 371 participants. Employers contribute to the Welfare Fund on behalf of their active employees.

Prior to October 2006, vacation benefits were not paid into the Welfare Fund. Instead, a separate fund held vacation benefits for employees of contributing employers ("the Vacation Fund"). In October 2006, the Vacation Fund merged with the Welfare Fund. However, the Welfare Fund continues to hold the assets related to employees' vacation benefits in a separate investment vehicle. (Dkt. No. 35 ("Jacobs Decl."), at ¶ 8.)

For a period in 1992 and now again, since June 2012, the Welfare Fund has been funded in part by retiree premiums. At all other times, retirees have not been required to contribute premiums.

As explained supra, the Welfare Fund is administered by its Trustees, half of whom are Union Trustees and half of whom are Employer Trustees. The Union Trustees together receive one vote, and the Employer Trustees receive one vote. Any action by the Trustees requires a vote of two to zero. An arbitrator is appointed in the event of a deadlock.

3. Administration of Vacation Benefits and Working Dues

Pursuant to Section 14 of the District Council's Bylaws, union members must pay to the District Council so-called working dues in the amount of 1% of the participants' total package rate as reflected in the current CBA for each hour worked, $0.60 per hour for each hour worked, and an additional $500 per year ("the working dues"). Prior to June 2012, the working dues were deducted from union members' vacation benefits in accordance with executed authorization cards and were then forwarded by the Welfare Fund to the District Council ("the Blue Card system"). The authorization cards executed by union members provided:

Dear Fund Administrator, You are hereby authorized and directed to deduct from my vacation pay when distributed to me, such amounts as designated, or as hereafter designated, by the District Council of Carpenters and my Local Union, if it is affiliated with the [District Council], and remit such sums to the District Council of Carpenters and/or my Local Union. The said amount so deducted represents a working assessment which I hereby direct to be paid to said District Council of Local Union, as the case may be to the extent permissible under applicable law....

Thus, prior to June 2012, vacation benefits payable to participants were the sum of contributions made by employers less the amount participants authorized and directed to be paid to the District Council for working dues. Until last year, the Welfare Fund was never compensated by the District Council for its role in the Blue Card system. In June 2012, after "emerg[ing] from many decades of control by organized crime" (D.C. Mem. at 1), the Trustees retained an independent certified public accounting firm, Schultheis & Penettieri, LP ("S&P"), to determine the appropriate cost allocation for the function performed by the Welfare Fund in connection with the Blue Card system. (Jacobs Decl. at ¶ 17.) The firm determined that the administrative costs of the program were $1, 363, 295. ( Id. at ¶ 18.) On February 14, 2013, the District Council reimbursed the Welfare Fund $1, 760, 196 for the costs of administering the dues deduction program, plus interest. ( Id. at ¶ 19.)

4. The Trust Agreements

The Welfare Fund was established and is maintained pursuant to a Trust Agreement. The parties to the relevant Trust Agreements were the Trustees, the District Council, and various employer associations. There have been two Trust Agreements in effect since 1982: the Amended Agreement and Declaration of Trust, effective as of May 20, 1982 ("the 1982 Trust Agreement") and the Amended Agreement and Declaration of Trust, effective as of July 1, 2004 ("the 2004 Trust Agreement"). The 2004 Trust Agreement remains in effect today.

At issue in the instant action are the differences between Section 4(e) in the 1982 Trust Agreement and Section 2(e) of the 2004 Trust Agreement. Section 4(e) of the 1982 Trust Agreement provides:

The Trustees are authorized to grant (1) all Fund benefits to the supervisory, auditing, and office employees of the [District Council] and its related Funds, (2) all Fund benefits, except those pertaining to accidental death & dismemberment, and disability, to retired employees, with no contributions being paid on their behalf after retirement, and (3) all Fund benefits to the employees of the [District Council] and to the employees of the Unions belonging to said District Council provided that annual contributions to the Fund are paid at a uniform rate or rate per person as shall be determined, in their discretion, by the Trustees. This amendment shall be retroactive to May 1, 1962.

By contrast, Section 2(e) of the 2004 Trust Agreement provides:

The Trustees are authorized to grant (1) all Fund benefits to... employees of the [Funds], (2) all Fund benefits to former Participants and Beneficiaries, and (3) all Fund benefits to the employees of the Union, the Affiliated Locals, the Labor-Management Corporation, employer associations... and the employer members of such associations, provided that annual Contributions are paid at a uniform amount or rate per person as shall be determined, in their discretion, by the Trustees. In the event that the Trustees grant any Fund benefits to former Participants and Beneficiaries, the Trustees may require such former Participants and Beneficiaries to pay a portion of the annual cost of Plan coverage to receive such benefits.

No written notice of the 2004 amendment was provided to the Welfare Fund participants.

The CBAs provide no promises regarding the level of benefits to be received by current or past employees. The CBAs do state, however, that "[e]ach Employer shall be bound by all the terms and conditions of the Agreements and Declarations of Trust, creating the Welfare and Pension Funds...."

5. The Summary Plan Descriptions

The Summary Plan Descriptions ("SPDs") describe the benefits available under the Welfare Fund, and inform participants of their rights and obligations, eligibility rules, when benefits may be denied, and procedures to file for benefits and to appeal claim denials. Participants are informed of amendments to an SPD by a Summary of Material Modification ("SMM").

The SPD in effect in 1982 was issued on July 1, 1978 ("the 1978 SPD"). In that 1978 SPD, the Trustees "reserve[d] the right to amend, modify or discontinue all or part of this Plan whenever, in their judgment, conditions so warrant." In that same document, the Trustees "reserve[d] the right to change or discontinue (1) the types and amounts of benefits under this plan and (2) the eligibility rules providing extended or accumulated eligibility even if the extended eligibility has already been accumulated."

6. The Welfare Fund's Recent Troubles

In recent years, the Welfare Fund's consultant has advised the Trustees that the Welfare Fund's financial position is deteriorating, and that its costs have regularly exceeded its income. In Fall 2011, the Trustees distributed a newsletter to Welfare Fund participants advising them of the Welfare Fund's deteriorating financial condition and of cost-saving measures being considered. The newsletter stated in part:

Q. Why is the Fund considering cost-control measures now?
A. The Fund has not been immune to the economic problems plaguing our nation. Over the past several years, the combination of fewer big construction projects and an increased presence of non-union contractors in our area had reduced the number of jobs for Carpenters. The result: an increased unemployment rate, an overall reduction of man-hours worked by participants, and a decline in the Fund's contribution income.

According to the Arbitrator's deadlock award, see infra, the Welfare Fund has been experiencing negative trends since 2009.

7. Deadlock and Arbitration

In light of the Welfare Fund's precarious financial condition, the Trustees agreed that the Welfare Fund needed to take steps to preserve the Fund's solvency. The Union and Employer Trustees could not agree, however, on what those steps should be taken to right the Welfare Fund. In 2011, the Trustees reached a deadlock over measures to reduce the Welfare Fund's costs.

In accordance with the Trust Agreement, the Trustees appointed Arbitrator Martin Scheinman to resolve the deadlock. On January 31, 2012, Arbitrator Scheinman issued an Interim Award regarding the measures to be taken to right the Welfare Fund. The Arbitrator's Interim Award directed the implementation of certain benefit modifications sufficient to reduce to Fund's expenses by $3.00 per hour by April 1, 2012. With respect to retirees, the Arbitrator ordered approximately 15 benefit reductions, including adding an in-network deductible and increasing the out-of-network deductible. The only reduction challenged by Retiree Plaintiffs is a requirement of a monthly premium equal to 10 percent of the benefit cost. The Trustees extended the implementation date of the Arbitrator's order to June 1, 2012 to allow the Welfare Fund adequate time to address certain administrative issues that arose as a result of the benefit changes.

At the end of March 2012, the Welfare Fund mailed SMMs describing the benefit changes to all participants, including retirees, that ...


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