LOCAL UNION NO. 98 INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS et al v. RIVERVIEW ELECTRICAL CONSTRUCTION, INC. et al
Filing
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MEMORANDUM. ( SIGNED BY HONORABLE MARY A. MCLAUGHLIN ON 10/17/11. ) 10/18/11 ENTERED AND COPIES MAILED TO UNREPS, E-MAILED.(gn, ) Modified on 10/18/2011 (gn, ).
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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
LOCAL UNION NO. 98
:
INTERNATIONAL BROTHERHOOD
:
OF ELECTRICAL WORKERS, et al. :
:
v.
:
:
RIVERVIEW ELECTRICAL
:
CONSTRUCTION, et al.
:
CIVIL ACTION
NO. 10-1168
MEMORANDUM
McLaughlin, J.
October 17, 2011
This is an action brought by trustees of various multiemployer benefit and trust funds of Local Union No. 98
International Brotherhood of Electrical Workers (the “Funds”) to
recover amounts they are owed under the Employee Retirement
Income Security Act (“ERISA”).
The defendants Riverview
Electrical Construction, Inc. (“REC”) and its principals,
Patricia Flanagan, Timothy Flanagan, and Thomas Flanagan, have
not appeared or defended in this action.
for entry of default judgment.
The Funds have moved
For the reasons that follow, the
Court will grant the motion.
I.
Procedural History
The Funds filed this action on March 17, 2010 under
ERISA to recover money owed to certain union employee benefit
funds pursuant to a multi-employer collective bargaining
agreement between Local Union No. 98 and the Philadelphia
Division of the Penn-Del-Jersey Chapter of the National
Electrical Contractors Association (“Commercial Agreement”).1
The
complaint asserts claims against REC as an employer and against
the Flanagans as employers or, in the alternative, as ERISA
fiduciaries.
The defendants never answered the complaint and the
Clerk of Court entered their default on September 13, 2010.
On
November 24, 2010, the defendants moved for default judgment
under Federal Rule of Civil Procedure 55(b), which the Court
denied without prejudice because the plaintiffs failed to provide
sufficient information to support the amounts they claimed in
unpaid contributions, interest, and penalties.
The plaintiffs filed their instant Amended Motion for
Default Judgment on April 7, 2011 and voluntarily rescinded the
allegations of Counts II-IV which sought to hold the individual
defendants personally liable as ERISA employers.
Their instant
motion relies solely on a fiduciary theory of liability under
ERISA Section 409, 29 U.S.C. § 1109(a), and seeks contributions
and withholdings only for the months of April 2009, May 2009, and
June 2009.
Attached to the amended motion is the affidavit of
1
The multi-employer benefit funds named in the complaint
are (1) the Health and Welfare Fund; (2) the Pension Fund;
(3) the Joint Apprentice Training Fund (“JATF”); (4) the Vacation
Fund; (5) the National Electrical Benefit Fund (“NEBF”); (6) the
Labor-Management Cooperation Fund; and (7) the Deferred Income
(or Profit Sharing) Fund. At the September 29, 2011 hearing, the
plaintiffs conceded any claims they were making under the LaborManagement Cooperation Fund and the “Job Recovery” fund (not
named in the Commercial Agreement).
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Debra Gerber (“Gerber Aff.”), an employee of a firm responsible
for maintaining an accounting of the values of monthly
contributions and withholdings that REC was required to remit to
Local 98 and its funds pursuant to the Commercial Agreement.
On September 29, 2011, the Court held a hearing on the
motion, and the plaintiffs presented evidence regarding the
amounts owed to the plans and the sources of the figures the
Funds claim are due and owing.
The plaintiffs supplemented that
showing by filing an Appendix of Exhibits on October 11, 2011.
II.
Factual Background2
The plaintiffs are trustees of the Funds, established
pursuant to Sections 3(3) and 3(37) of ERISA, 29 U.S.C.
§§ 1002(3),(37).
REC is a corporation engaged in the business of
providing electrical services.
Patricia Flanagan was President
and owner of REC, and Timothy and Thomas Flanagan were owners and
acting principals of REC.
REC was a party to the Commercial
Agreement, and thus obligated to furnish monthly reports to Local
98 regarding the names of its member employees, the hours they
worked, and their gross earnings.
The operative Commercial
Agreement between Local 98 and REC was effective from May 1, 2006
through April 20, 2010.
Compl. ¶¶ 5-14, Ex. 1 § 1.01.
2
Because this is a motion for default judgment, the Court
accepts as true any factual allegations, other than those as to
damages, contained in the complaint. DIRECTV, Inc. v. Pepe, 431
F.3d 162, 165 n.6 (3d Cir. 2005).
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A.
The Funds
The Commercial Agreement, in accordance with the trust
agreements establishing the Funds, required REC to remit monthly
payments to the following funds relevant to the instant motion:
(1) the Health & Welfare Fund; (2) the Pension Fund; (3) the
JATF; (4) the Vacation Fund; and (5) the Deferred Income/Profit
Sharing Fund.3
Gerber Aff. ¶¶ 5, 8, 11, 14, 17.
The Commercial
Agreement also provides for liquidated damages to be paid on all
delinquent contributions in the amount of 10% of the total
contributions owing, and interest at the rate of 2% per month
until full payment has been received.
Compl. Ex. 1 § 3.09(b).
REC failed to remit payment for any of these funds in
the months of April, May, and June 2009.
The total amounts owing
to each fund are as follows:
3
The Gerber Affidavit also claimed payments were due for
the Contribution of Political Expenditure Fund, the Union Dues SUPP Fund, and the SUP2100 Fund. Gerber Aff. ¶¶ 20-29. The
funds do not appear in the complaint or Commercial Agreement, and
the Court therefore finds there is insufficient evidence to
support a judgment including amounts due to these funds. The
Gerber Affidavit also claimed unpaid union dues were owed, but
because the plaintiffs have only pled claims under ERISA, these
amounts are unrecoverable. See 29 U.S.C. §§ 10021(1)-(3).
Finally, although the complaint seeks unpaid contributions to the
NEBF, the Gerber Affidavit is devoid of any reference to that
fund; at the September 29 evidentiary hearing, Ms. Gerber
confirmed that she is not responsible for managing the accounting
of that fund. Hr’g Tr. 25:12-17 (Docket No. 16). The Court thus
finds the plaintiffs have not presented sufficient evidence to
hold the defendants liable for any unpaid contributions to that
fund.
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Health & Welfare
$ 10066.55
Pension
6855.88
Vacation
2445.75
JATF
1109.20
Deferred Income
7687.80
----------------------------------Total
$ 28165.18
Gerber Aff. ¶¶ 5-19.
Pursuant to the Commercial Agreement,
$2,816.52 in liquidated damages and $2,372.03 in interest (2% per
month between August 2009 and September 2011) are owed on the
total.
Disbursements to the Health & Welfare, Pension, JATF,
and Deferred Income funds are made in the form of employer
contributions, calculated as a percentage of gross labor payroll.
Gerber Aff. ¶¶ 5, 8, 14, 17.
Disbursements to the Vacation Fund,
by contrast, are withheld from employee wages and then sent to
the fund.
Id. ¶ 11.
The plaintiffs presented evidence that
contributions to the Health and Welfare Fund, JATF, and Profit
Sharing Fund are vested in the trustees of the fund at the time
the obligation to contribute arises.
B.
App’x of Pls.’ Exs., Ex. 3.
The Individual Defendants
Counts V-VII of the complaint allege violations by the
individual defendants of 29 U.S.C. § 1109 for breach of their
fiduciary duties.
The complaint and instant motion contain a
range of factual allegations with respect to each individual
defendant.
Patricia Flanagan is a principal of REC who had
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authority to bind the corporation in contract and signed the
Letter of Assent binding REC to the Commercial Agreement.
Mot. 8, Ex. 1.
Pls.’
She also authorized and tendered the payment of
contributions and withholdings due to the Funds pursuant to the
Commercial Agreement, and “exercised discretionary control over
the management of the financial responsibilities and business
affairs” of REC.
Compl. ¶ 74.
Timothy Flanagan is an owner of REC, according to the
affidavit of Ms. Jacqueline Coyle, who supervised an accounting
compliance review of REC conducted by an outside accounting firm,
and heard this fact from REC’s payroll administrator, Mr. Michael
Newman.
Affidavit of Jacqueline Coyle, Id. Ex. 3.
He also
authorized and tendered the payment of contributions and
withholdings due to the Funds pursuant to the Commercial
Agreement, and “exercised discretionary control over the
management of the financial responsibilities and business
affairs” of REC.
Compl. ¶ 87.
Thomas Flanagan is also an owner of REC.
Id.
In
addition, Thomas Flanagan signed at least twelve checks between
October 2008 and July 2009, drawn from REC’s payroll account and
payable to Local 98 in connection with the Funds.
Id. Ex. 4.
authorized and tendered the payment of contributions and
withholdings due to the Funds pursuant to the Commercial
Agreement, and “exercised discretionary control over the
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He
management of the financial responsibilities and business
affairs” of REC.
C.
Compl. ¶ 100.
Attorneys’ Fees and Costs
The plaintiffs also presented evidence that they
incurred $17,050.89 in attorney’s fees and reimbursable expenses
from counsel Steven F. Marino in connection with this litigation.
App’x of Pls.’ Exs., Ex. 4.
III. Discussion
Under section 1145 of ERISA, every employer who is
obligated to make contributions to a multi-employer plan under
the terms of the plan or under the terms of a collectively
bargained agreement shall make such contributions in accordance
with the terms of the plan or agreement.
A.
29 U.S.C. § 1145.
Liability of REC
ERISA provides that in any action by a fiduciary
against an employer for delinquent contributions in which
judgment is awarded in favor of the plan, the court shall award
the plan:
(A) the unpaid contributions,
(B) interest on the unpaid contributions,
(C) an amount equal to the greater of (i) interest on the unpaid
contributions, or
(ii) liquidated damages provided for
under the plan in an amount not in
excess of 20 percent (or such higher
percentage as may be permitted under
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(D)
the
(E)
the
Federal or State law) of the amount
determined by the court under
subparagraph (A),
reasonable attorney’s fees and costs of
action, to be paid by the defendant, and
such other legal or equitable relief as
court deems appropriate.
29 U.S.C. § 1132(g)(2).
Section 1132(g) also provides that
interest on unpaid contributions shall be determined by using the
rate specified by the plan, or, if none, the rate prescribed.
The facts set forth above demonstrate that REC and
Local 98 entered into a Commercial Agreement that required REC to
remit monthly contributions, but that REC failed to remit
contributions for the months of April, May, and June 2009.
The
Commercial Agreement further provided for liquidated damages and
interest on unpaid contributions.
The Court finds that the
plaintiffs are entitled to recover from REC the unpaid monthly
contributions, liquidated damages in the amount of 10%, interest
in the amount of 2% per month, attorney’s fees, and costs.
B.
Liability of the Flanagans
A fiduciary is personally liable for a breach of
fiduciary duty under ERISA, 29 U.S.C. § 1109(a).
In Counts IV-
VI, the trustees seek to hold individual defendant Powers
personally liable as a fiduciary of the Funds under ERISA §
3(21)(A), 29 U.S.C. § 1002(21)(A).
The Court finds that the
plaintiffs have alleged sufficient facts to hold each of the
Flanagans liable as fiduciaries.
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Under ERISA, 29 U.S.C. § 1002(21)(A), a person is a
fiduciary to the extent:
(i) 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,
(ii) he renders investment advice for a fee
or other compensation, direct or indirect,
with respect to any moneys or other property
of such plan, or has any authority or
responsibility to do so, or
(iii) he has any discretionary authority or
discretionary responsibility in the
administration of such plan.
The statutory definition requires that a fiduciary “must be
someone acting in the capacity of manager, administrator, or
financial advisor to a plan.”
Pegram v. Herdrich, 530 U.S. 211,
222 (2000) (internal quotations omitted).
The statute uses
different criteria in imposing fiduciary obligations for each of
these three roles.
In this case, the applicable provision is
§ 1002(21)(A)(i) because plaintiffs seek to hold the Flanagans
liable as managers, not as administrators or financial advisors.
See Bd. Of Trustees of Bricklayers and Allied Craftsmen Local 6
of N.J. Welfare Fund v. Wettlin Assocs., Inc., 237 F.3d 270, 272
(3d Cir. 2001) (hereinafter Bricklayers).
“Fiduciary status
attaches to a person managing an ERISA plan under subsection (i)
of § 1002(21)(A) if that person exercises discretion in the
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management of the plan, or if the person exercises any authority
or control over the management or disposition of the plan’s
assets.”
Srein v. Frankford Trust Co., 323 F.3d 214, 220-21 (3d
Cir. 2003) (emphasis in original).
Lower courts have used a two-part test to determine
whether fiduciary liability attaches to individuals: (1) unpaid
contributions must be “plan assets,” and (2) the individual must
either exercise discretion in the management of the plan or
exercise any authority or control over the plan assets.
See
Gateway Elevator, No. 09-4206, 2011 WL 2462027, at *5 n.6 (E.D.
Pa. June 21, 2011); see also Teamsters Health and Welfare Fund v.
World Trans., Inc., 241 F. Supp. 2d 499, 505 (E.D. Pa. 2003)
(hereinafter Teamsters) (citing Curcio v. John Hancock Mut. Life
Ins. Co., 33 F.3d 226, 233 (3d Cir. 1994)).
The plaintiffs here have met their burden as to the
“plan assets” prong with respect to all funds except the Pension
fund.
They have met their burden as to the “authority or
control” prong with respect to all of the Flanagans.
1.
Plan Assets
The record supports a finding that the unpaid
contributions are plan assets of all the Funds except the Pension
Fund.
ERISA regulations define “plan assets” as amounts that a
participant pays to an employer, or amounts that a participant
has withheld from his wages by an employer.
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29 C.F.R. § 2510.3-
102(a)(1).
Here, the Commercial Agreement provides that REC
shall deduct wages from plan participants at and deposit the
contributions into the Vacation Fund.
Thus, these monies are
plan assets for purposes of holding the Flanagans liable as ERISA
fiduciaries.
The remainder of the Funds are funded by employer
contributions.
When an employer’s contribution (not an
employee’s wage withholding) is the source of funding for a plan,
federal regulations are silent, and a court must look to the
terms of the agreement to determine whether unpaid employer
contributions constitute “plan assets” under ERISA.
See Local
Union No. 98, IBEW v. RGB Svcs., LLC, No. 10-3486, 2011 WL
292233, at *5 (E.D. Pa. Jan. 28, 2011) (citing Bottle Beer
Drivers, Warehousemen & Helpers Teamsters Local 843 v. Anheuser
Busch Inc., 96 F. App’x 831, 834 (3d Cir. 2004)).
The plaintiffs have presented evidence that the Trust
Agreements associated with the Health & Welfare, JATF, and Profit
Sharing Funds establish that “[t]itle to all monies paid into
[the funds] shall be vested in the Trustees of the Fund, in trust
as of the date the employer’s obligation to contribute arises.”
App’x of Pls.’ Exs., Ex. 4.
The record thus supports a finding
that the unpaid contributions to all funds except for the Pension
Fund are plan assets.
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2.
Authority or Control
The plaintiffs have also demonstrated that each of the
Flanagans exercised discretionary authority or control over the
disposition of the plan assets sufficient to hold each liable as
an ERISA fiduciary.
Here, the factual allegations of the complaint
establish that the Flanagans exercised discretionary control over
the monies owed to the Funds as high-level officers of REC.
According to the complaint, the Flanagans’ positions as senior
officers and owners of REC gave each discretion over the business
affairs and expenditures of the company.
These responsibilities
included the authorization and tender of payment of contributions
and withholdings due under the Commercial Agreement.
The
complaint establishes that each of the Flanagans breached their
duties by failing to remit contributions to the Funds in
accordance with the Commercial Agreement.
Patricia Flanagan,
Thomas Flanagan, and Timothy Flanagan are thus individually
liable as ERISA fiduciaries with respect to each of the funds
except the Pension fund.
An appropriate order follows.
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