United States District Court, S.D. New York
OPINION AND ORDER
KEVIN NATHANIEL FOX, Magistrate Judge.
The plaintiffs, Trustees of the United Health and Welfare Fund ("Fund"), brought this action pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., and the Labor Management Relations Act of 1974 ("LMRA"), 29 U.S.C. § 152 et seq., against defendants N. Kofsky & Son, Inc. ("NKS"), Kofsky & Son, Inc. a/k/a Kofsky & Son Plumbing ("KSI"), Richard Kofsky and Stephen Kofsky. The Fund seeks to obtain monetary contributions that the defendants allegedly failed to pay to the Fund as required by, inter alia, a collective bargaining agreement ("CBA") between NKS and the International Longshoremen's Association, Local 976 ("Union"). The Fund alleges that defendants NKS and KSI are jointly and severally liable to the Fund for unpaid contributions because, at all relevant times, they had an alter ego or single employer relationship. The Fund also alleges that Richard Kofsky and Stephen Kofsky are individually liable to the Fund for the unpaid contributions because they conspired to defraud it of the required benefit contributions by transferring assets from NKS to KSI, which, since KSI is not a signatory to the CBA, enabled them to conceal NKS's financial activity.
The Court held a bench trial on the disputed issues in this case on May 19, 2014. The direct testimony of trial witnesses was received via affidavits or declarations. At the close of the plaintiffs' case, the defendants moved for judgment on partial findings, pursuant to Rule 52(c) of the Federal Rules of Civil Procedure. The plaintiffs opposed the motion.
The plaintiffs commenced this lawsuit on December 24, 2008. On July 24, 2009, NKS filed a voluntary Chapter 7 petition thereby commencing bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York. As a consequence of that filing, the instant action was automatically stayed against the debtor, NKS. Thereafter, on September 25, 2012, the plaintiffs filed an amended complaint.
On September 26, 2013, this Court issued a Memorandum and Order granting, in part, and denying, in part, the plaintiffs' motion for summary judgment with respect to the claims set forth in their amended complaint. Specifically, the Court determined that no disputed issue of fact existed concerning whether NKS was liable to the Fund for unpaid benefit contributions and, therefore, granted summary judgment to the plaintiffs on the first count of their amended complaint. The Court denied summary judgment to the plaintiffs with respect to the remaining counts of their amended complaint. In addition, the Court determined that the scope of NKS's liability for unpaid benefit contributions was not established because the report prepared by the Fund's auditor in connection with this action was insufficient to support the plaintiffs' claims for damages, as the report relied on unsupported assumptions concerning the hours worked, the wages paid and the amount of covered work performed in the relevant periods.
Prior to trial, the parties submitted a joint pretrial order setting forth, inter alia, the claims and defenses to be tried. Following the trial, on May 28, 2014, the plaintiffs' counsel advised the Court that he had learned from the defendants' counsel that KSI had commenced a Chapter 11 bankruptcy proceeding on July 25, 2013, and that the bankruptcy proceeding was ongoing. The bankruptcy proceeding triggered a stay of proceedings in this court respecting KSI. See 11 U.S.C. § 362(a). On May 28, 2013, counsel to the defendants wrote to the Court acknowledging the existence of the bankruptcy proceeding and informing the Court that a senior associate in his office had handled the proceeding and that he had forgotten about it. By order dated May 30, 2014, the defendants' counsel was directed to advise the Court in writing within sixty days concerning his efforts to have the stay imposed by 11 U.S.C. § 362(a) relative to KSI lifted, presumably nunc pro tunc to a date prior to or contemporaneous with the date on which the trial was held.
On July 25, 2014, the defendants' counsel informed the Court, via a letter, that KSI's Chapter 11 bankruptcy proceeding was dismissed on June 30, 2014. The Court then directed the parties to submit memoranda of law addressing the question whether the bench trial, which occurred after the automatic stay imposed pursuant to 11 U.S.C. § 362(a) took effect, was rendered void and without effect as to debtor KSI. Thereafter, the Court considered the parties' submissions and determined that the May 19, 2014 bench trial, as it related to KSI, was void and without vitality because it occurred while the § 362(a) stay was in effect. As the Second Circuit explained in In re Heating Oil Partners, 422 Fed.Appx. 15, 17-18 (2d Cir. 2011):
The automatic stay provision is considered one of the fundamental debtor protections provided by the bankruptcy laws. Eastern Refractories Co. v. Forty Eight Insulations Inc., 157 F.3d 169, 172 (2d Cir. 1998).... The stay is effective immediately upon the filing of the petition, and any proceedings or actions described in section 362(a)(1) are void and without vitality if they occur after the automatic stay takes effect. Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 527 (2d Cir. 1994).... The stay takes effect automatically and without the requirement of notice to affected parties; [b]y its very terms, no action by any court is necessary for the stay to take effect. In re Colonial Realty Co., 980 F.2d 125, 137 (2d Cir. 1992).... The automatic stay remains in effect until the granting of a discharge injunction pursuant to 11 U.S.C. § 524(a). See 11 U.S.C. § 362(c)(2); In re James, 285 B.R. 114, 116 (Bankr. W.D.N.Y. 2002). (internal quotation marks omitted).
See also Garrity v. Hospital Consultants, Inc., 128 B.R. 333 (S.D.N.Y. 1991) (finding that a shareholder derivative suit brought against, inter alia, the parent corporation violated automatic stay provision).
The Court held a conference with counsel for the parties. During the conference, the Court noted that the parties had already expended considerable time and resources preparing for and conducting the trial held on May 19, 2014, and that, at a new trial (to which KSI is entitled because of the breach of the stay), it was likely that the Court would hear the same evidence it heard previously regarding KSI. Hence, in order to ensure an economical and efficient litigation, as Fed.R.Civ.P. 1 urges, the Court proposed that the parties consider that the trial for KSI be conducted on a stipulated record, that is, the record already generated during the May 19, 2014 bench trial, including the testimony and exhibits introduced during that proceeding. Thereafter, on December 4, 2014, the parties filed a stipulation setting forth their desire that the record generated on May 19, 2014, be the record for the KSI trial and that the Court proceed to determine the defendants' Fed.R.Civ.P. 52(c) motion with respect to the May 19, 2014 trial and the KSI trial on the stipulated record. See Docket Entry No. 93.
In a bench trial, "[i]t is within the province of the district court as the trier of fact to decide whose testimony should be credited." Krist v. Kolombos Rest., Inc., 688 F.3d 89, 95 (2d Cir. 2012) (citation omitted). See also Newman v. Herbst, No. 09-cv-4313, 2011 WL 684165, at *1 (E.D.N.Y. Feb. 15, 2011) ("In any bench trial, the trial judge has to evaluate the credibility of the witnesses that testify, the witnesses' demeanor, any previous inconsistent statements by a witness, as well as the witness's explanation for any such inconsistent statements.").
The Court has reviewed all the evidence and submissions and has made evaluations of the credibility of the witnesses and the merits of the parties' submissions. Based on its review, the Court makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
The Fund is a jointly-administered, multi-employer, labor-management trust fund established and maintained pursuant to a collective bargaining agreement and certain trust agreements. The Fund maintains business offices in Englewood Cliffs, New Jersey. The purpose of the Fund is to receive and collect benefit contributions and to provide various benefits to eligible employees on whose behalf employers contribute to the Fund, pursuant to their collective bargaining agreements.
At the time this action was commenced, defendants NKS and KSI were for-profit corporations doing business in the state of New York and engaged in the plumbing trade. At all relevant times, Richard Kofsky was the president and sole shareholder and owner of NKS and the owner of fifty-one percent (51%) of the shares of KSI, and Stephen Kofsky, his son, was the owner of forty-nine percent (49%) of the shares of KSI.
NKS filed a voluntary Chapter 7 petition for bankruptcy on July 24, 2009. As a result, NKS is no longer in business. KSI was incorporated in or about March 2007. According to the direct testimony declaration of Richard Kofsky, which was admitted into evidence during the trial, "it is uncontested that KSI was not formed until approximately six months after the commencement of [NKS's] bankruptcy proceedings." However, during cross-examination, Richard Kofsky testified that certain employees of NKS became employees of KSI about "two or three weeks" after NKS filed for bankruptcy.
On or about March 6, 2004, NKS entered into the CBA with the Union. A copy of the CBA was received into evidence at trial. The CBA between NKS and the Union required NKS to make contributions to the Fund in specific amounts for each hour of work "for each day a regular employee works" in an area of employment covered by the CBA. The CBA covered workers engaged in "the industry of maintenance of existing buildings, including plumbing replacement, restoration, [and]... all other related work... in the classifications set forth in [the CBA]." The CBA also provided that the Union had the right to audit the payroll records of the employer, here, NKS, at any given time.
The CBA became effective on March 6, 2004, and included a provision stating that it would "continue in full force and effect until midnight on March 5, 2007, " when it would terminate, provided proper and timely notice was given by the party seeking termination. If a party failed to provide such notice, the CBA, by its terms, would "automatically renew for further periods of one (1) year."
The credible evidence presented at trial established that neither party gave such notice to the other and, hence, that the CBA remained in effect at least until NKS filed for bankruptcy and ceased operations. NKS made contributions for its employees to the Fund as required by the CBA until at least 2002. Richard Kofsky testified that NKS ceased making contributions to the Fund because it could no longer afford to make them. It is undisputed that KSI was not a signatory to the CBA, never signed a collective bargaining agreement with the Union and made no contributions to the Fund.
Regarding the operations of NKS, Richard Kofsky testified, through his direct testimony declaration, that "[w]hile both companies perform plumbing work, NKS served a high-end, luxury' client base, such as the Trump Organization [whereas] [t]he clients of KSI... are generally much less wealthy than those served by NKS." Richard Kofsky testified further that "[m]ost of the clients NKS worked with do not work with KSI [and] [t]he inverse is also true-most of KSI's clients were not clients of NKS." (Emphasis in original). Richard Kofsky testified that while "NKS had nine union employees; only three of these individuals are employed by KSI."
During cross-examination, Richard Kofsky testified that, at all relevant times, both NKS and KSI were located at 1525 Bassett Avenue, Bronx, New York. Prior to July 2009, NKS held a lease for this office space; the lease was terminated upon NKS's filing for bankruptcy.
Thereafter, in or around 2009, KSI entered into a separate lease for the office space.
During cross-examination, Richard Kofsky testified that the employees of NKS performed plumbing work, carpentry work, tile work, painting and general contracting work on existing buildings in the boroughs of Brooklyn and the Bronx in New York. Most of the buildings in which the work was performed were residential, while a small percentage of the buildings were commercial. Richard Kofsky denied that employees of NKS performed "maintenance" work, explaining that maintenance involves repairing old valves whereas his company installs new valves: "so it's plumbing, not maintenance." According to Richard Kofsky, KSI does work that is more "generic" such as "replacing gas lines or replacing water lines and the only work that we're doing in regards to restoration would be the small patching of the holes that we make to install these new lines." By contrast, NKS performed "complete renovations of bathrooms and kitchens with the tenants living there in place which included carpentry work or joist replacement and replacement of all walls and floors and the plumbing, water and waste. The work was much more extensive much more labor intensive and much more money than what we're doing now."
During cross-examination, Richard Kofsky testified that, at the time NKS filed for bankruptcy, he had extensive communications with the bankruptcy trustee during which he advised the bankruptcy trustee of the existence of KSI. During redirect examination, Richard Kofsky testified that, as part of the process of the bankruptcy of NKS, he appeared for a meeting of creditors, one of which was an attorney representing the Union, and that he answered questions put to him by that individual.
Richard Kofsky denied that any equipment belonging to NKS was "transferred" to KSI. Rather, at the time of the bankruptcy of NKS, the company's equipment, which included three Ford vans, tools and office furniture, was purchased by KSI. According to Richard Kofsky, "the [bankruptcy] trustee sent an auditor to the offices of [NKS] who did an extensive listing of all of the material and its value. And that was also purchased by [KSI] from [NKS]. The check was then given to the trustee. And the trustee included [those] proceed[s] into the disbursement of the funds."
Richard Kofsky testified further concerning his son, Stephen Kofsky. Richard Kofsky testified that Stephen Kofsky is now, inter alia, a licensed master plumber, that he does the "majority of the permit work" and the "majority of the inspection work for the City of New York." Richard Kofsky testified further that Stephen Kofsky was an employee of NKS for about four to five years, that he began work as a laborer in the field and thereafter performed office and supervisory duties. During that period, Stephen Kofsky had no authority to hire or terminate employees. As a part owner of KSI, Stephen Kofsky has the ability to hire and fire employees, to decide which job location the employees are sent to, "whether or not they're producing enough or whether or not if somebody calls out sick to bring a doctor's note."
Richard Kofsky testified further that at the time of NKS's bankruptcy, the Internal Revenue Service filed a claim against NKS for unpaid payroll taxes and other withholding taxes in the amount of approximately one million dollars; in addition, the New York State Department of Taxation also filed a claim against NKS for taxes owed to the state. Richard Kofsky testified that part of the Internal Revenue Service tax debt was paid by the bankruptcy trustee from the proceeds of the sale of the assets of NKS as well as the proceeds from the sale of a home in Florida.
In addition, testimony given by Richard Kofsky at the time of his deposition, which was admitted into evidence during the trial and incorporated into the record, indicated that Richard Kofsky had arranged for payment to the Internal Revenue Service of $5, 000 per month, for twelve years, from proceeds of the entities Rush 21 and Rush Realty, to be applied to the tax liability of NKS. Richard Kofsky testified further that he was personally responsible for the tax ...