VINCENT L. BRICCETTI, District Judge.
Plaintiffs, Trustees of the Sheet Metal Workers International Association Local No. 38 Insurance and Welfare Fund, Sheet Metal Workers International Association Local No. 38 Profit Sharing Plan, Sheet Metal International Association Local No. 38 Individual Vacation Account Fund, Sheet Metal Workers Local 38 Labor Management Committee and Trust, Sheet Metal Workers Local 38 Craft Training Fund, Sheet Metal Workers National Pension Fund, and Sheet Metal Workers Local 38 Craft Training Building Fund, bring this action against defendants, Haldean Sheet Metal Fabricators, Inc. ("Haldean"), Robert Hale, and Florence Hale, pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1002
Now pending are defendants' motion for summary judgment (Doc. #110) and plaintiffs' cross-motion for summary judgment (Doc. #116). For the reasons set forth below, defendants' motion is GRANTED IN PART and DENIED IN PART. Plaintiffs' cross-motion is GRANTED IN PART and DENIED IN PART.
The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 and 29 U.S.C. §§ 185(a), 1132(e).
The parties have submitted briefs, statements of fact pursuant to Local Civil Rule 56.1, declarations and affidavits ("Aff."), and supporting exhibits, which reflect the following factual background.
Plaintiffs are trustees of multiemployer fringe benefit funds (the "Funds") established and administered in accordance with the Labor Management Relations Act ("LMRA") and the Employee Retirement Income Security Act ("ERISA").
Haldean is a family owned steel fabrication and installation corporation. Individual defendant Robert Hale and his late brother-in-law, Peter DeAngelis, incorporated Haldean in 1977. At an initial shareholders' meeting on June 15, 1977, Robert Hale and Peter DeAngelis adopted bylaws, appointed themselves directors of Haldean, and elected Hale's wife, defendant Florence Hale, as Haldean's President and Secretary, and DeAngelis's wife, Mary DeAngelis, as Haldean's Vice President and Treasurer.
Haldean operated out of 581 North State Road, in Briarcliff Manor, New York. In approximately 1981, after several years renting the property, Robert Hale and Peter DeAngelis formed North State Associates Partnership and purchased the property. From that time, Haldean paid rent to North State Associates, with the rent being equivalent to North State Associates's monthly mortgage payment and common condominium charges.
At Haldean, Robert Hale managed sheet metal fabrication and installation, and Peter DeAngelis managed sales, bidding, and client relationships, and was assisted by Florence Hale in managing bill pay, collection, and payroll. When Peter DeAngelis died in 2009, Florence Hale and Brian Mullins, a Haldean employee, took over many of Peter DeAngelis's responsibilities.
Haldean failed to file New York State corporate tax returns between 2009 and 2015. As a result, New York State dissolved Haldean by proclamation in 2012. In 2016, Haldean filed its tax returns and was reinstated.
In 1997, Haldean entered into a collective bargaining agreement (the "1998 CBA") with Local 38. The 1998 CBA became effective July 1, 1998. Pursuant to the 1998 CBA, Haldean was required to make fringe benefit contributions to the Funds for each of its Local 38 employees.
The 1998 CBA provided for periodic updates to the union wage scale, and contained an "evergreen" clause, stating:
(R. Hale Aff. Ex. B: 1998 CBA, Art. XIII § 4). Following the 1998 CBA, Haldean was not provided a subsequent CBA, and neither Haldean nor Local 38 issued a notice of reopening, written or otherwise.
Local 38 entered into collective bargaining agreements in 2002, 2012, and 2015 (the "subsequent CBAs"). However, Haldean did not receive or sign the subsequent CBAs.
Wendy Santucci, an employee of the Funds, was responsible for union employers' remittance of fringe benefit contributions. On a monthly basis, employers provided Santucci a record of employee hours worked. Santucci then created an invoice reflecting benefit contributions owed.
Haldean participated in this process, but in 2009 Haldean fell on hard times — Peter DeAngelis died suddenly, Florence Hale was in poor health, and, according to defendants, business was down. Haldean became delinquent in its benefit contributions, and by 2011 ceased reporting employee hours to Santucci altogether. Santucci nevertheless input estimated hours for Haldean's employees on a monthly basis, crediting their vacation and annuity accounts, which caused fund monies to be released. Santucci testified she credited those accounts in particular because she was aware that workers reviewed them, and would notice any shortfall. Thus, despite Haldean's delinquency, those accounts were paid and up to date for Haldean's employees.
Santucci was also required to keep a record of employers whose benefit contributions were delinquent or unpaid. Santucci provided the Funds' manager, Mark Modzeleski, a list of such employers each month. Modzeleski reviewed the list and forwarded it to Local 38. Richard Pagano replaced Modzeleski in 2014, and he followed the same procedure.
In a number of telephone conversations, Santucci and Florence Hale discussed Haldean's delinquent benefit contributions. Despite her discussions with Florence Hale about Haldean's arrears, Santucci never relayed to Modzeleski or Pagano that Haldean's benefit contributions were unpaid.
Haldean's six year delinquency ultimately was discovered in March 2015. Santucci was supposed to send the National Pension Fund employer hours on a monthly basis, but at that time she instead sent a single submission of Haldean's hours for the years 2009-2015 (the "relevant time frame"). Pagano questioned Santucci, who admitted she had not reported Haldean's failure to make benefit contributions. As a result, the Funds terminated Santucci.
On November 12, 2015, the Funds obtained a consent judgment against Santucci in the amount of $1,682,509.94. Santucci remitted her retirement fund in partial satisfaction of the judgment.
Although Local 38 typically audits employers every three years, Haldean was not audited between 2003 and 2015. In 2015, after the National Pension Fund advised Pagano there was an issue with Haldean's hours, the accounting firm Novak Francella conducted a payroll audit. Novak Francella's report reflected that for the period January 1, 2009, to June 30, 2015, Haldean owed the Funds $1,682,509.94. Of that amount, $321,689.31 is interest, and, according to defendants, $213,720.72 represents contributions Haldean withheld from its employees' wages but failed to remit to the Funds.
The Court must grant a motion for summary judgment if the pleadings, discovery materials before the Court, and any affidavits show there is no genuine issue as to any material fact and it is clear the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c);
A fact is material when it "might affect the outcome of the suit under the governing law. . . . Factual disputes that are irrelevant or unnecessary" are not material and thus cannot preclude summary judgment.
A dispute about a material fact is genuine if there is sufficient evidence upon which a reasonable jury could return a verdict for the non-moving party.
If the non-moving party has failed to make a sufficient showing on an essential element of his case on which it has the burden of proof, then summary judgment is appropriate.
On summary judgment, the Court construes the facts, resolves all ambiguities, and draws all permissible factual inferences in favor of the non-moving party.
In deciding a motion for summary judgment, the Court need only consider evidence that would be admissible at trial.
The Funds assert, and defendants do not dispute, that Haldean is liable for unpaid benefit contributions for employee hours worked during the relevant time frame.
Accordingly, the Funds' cross-motion for summary judgment as to Haldean's liability for unpaid benefit contributions is granted.
The Funds argue that Robert and Florence Hale (the "Hale defendants") are personally liable for unpaid benefit contributions on two grounds: (i) pursuant to ERISA, the unpaid benefit contributions are "plan assets" for which the Hale defendants may be held liable as fiduciaries; and (ii) the "special circumstances" doctrine permits the imposition of personal liability.
The Funds first argue the Hale defendants are personally liable for all unpaid benefit contributions for employee hours worked during the relevant time frame pursuant to their status as fiduciaries of ERISA plan assets. The Hale defendants dispute whether Haldean's unpaid benefit contributions properly are considered plan assets, and further dispute whether Robert Hale was a fiduciary of plan assets.
As set forth below, the Court concludes that Haldean's unpaid benefit contributions (except to the extent they were actually withheld from employees' wages but not remitted to the Funds) are not plan assets pursuant to ERISA. The Court further concludes that Florence Hale was a fiduciary of plan assets, but the Court cannot determine on summary judgment whether Robert Hale was a fiduciary of plan assets.
ERISA provides that "[a]ny person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries . . . shall be personally liable to make good to such plan any losses to the plan resulting from each such breach." 29 U.S.C. § 1109(a). "In order to establish that a person is personally liable as a fiduciary of the plan, plaintiffs must prove `both that (1) the unpaid contributions were plan assets and (2) [the individual] exercised a level of control over those assets sufficient to make him a fiduciary.'"
In assessing the first factor, unpaid benefit contributions are not normally held to be assets of a plan, unless the parties to a CBA contract otherwise.
An entity can adopt the terms of an unsigned CBA through its actions.
Unlike the defendant in
Moreover, by virtue of its evergreen clause, the 1998 CBA renewed automatically when it expired on April 30, 2002. The evergreen clause indicates the 1998 CBA will continue in full force and effect unless written notice of reopening is given. It is uncontested that neither Haldean nor Local 38 gave notice to reopen or terminate the 1998 CBA.
The Funds seem to assert the evergreen clause operates to bind Haldean to each subsequent CBA executed by Local 38. Even if the Court were to accept the Funds' interpretation of the evergreen clause, it would not obviate Local 38's obligation to provide Haldean some form of notice of its intent to terminate or modify the 1998 CBA.
Likewise, the Funds' reliance on
Therefore, the Court finds the 1998 CBA governs Haldean's relationship with the Funds.
The Hale defendants concede that contributions in the amount of $213,720.72 were withheld from Haldean employees' wages but not remitted to the Funds, and therefore constitute plan assets. (Haldean Br. at 14-15). Thus, to the extent the Hale defendants are fiduciaries pursuant to ERISA (as discussed below), they may be held liable for those unremitted contributions.
Defendants concede Florence Hale is an ERISA fiduciary. Thus, Florence Hale is personally liable for plan assets Haldean failed to remit to the Funds.
Defendants contest Robert Hale's status as an ERISA fiduciary, and the Court concludes that issue cannot be resolved on summary judgment.
ERISA provides that a person is a fiduciary with respect to an ERISA benefit plan to the extent "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." 29 U.S.C. § 1002(21)(A)(i). "Congress intended ERISA's definition of fiduciary `to be broadly construed' . . . [and] functional."
In determining whether an individual defendant is liable as a fiduciary of ERISA plan assets, courts analyze how much control the individual exercised over such assets. In making this determination, courts look to several factors, "most significantly, whether a defendant was responsible for authorizing and making payments to an employee benefits plan."
The Funds argue Robert Hale was a co-owner and fifty percent shareholder of Haldean, and the signatory on all checks written on Haldean's account, including three checks made payable to the Funds in the relevant time frame. The Funds further argue Robert Hale worked in Haldean's offices every day, whereas Florence Hale was in poor health and regularly worked from home. The Funds contend Robert Hale's familiarity with Haldean's finances is demonstrated by the use of Haldean's assets to repay a loan taken against Robert Hale's annuity plan.
Defendants argue the testimony of Haldean's employees establishes Robert Hale worked almost exclusively in the field on production, whereas Florence Hale was responsible for Haldean's administrative work, including determining which bills to pay and when. This is supported by Wendy Santucci's testimony that she communicated with Florence Hale and Peter DeAngelis regarding Haldean's unpaid benefit contributions, but never spoke to Robert Hale.
Based on the foregoing, the Court concludes that genuine issues of material fact regarding Robert Hale's control over Haldean's assets preclude summary judgment.
The Funds next argue special circumstances warrant the imposition of personal liability against the Hale defendants.
For the reasons that follow, the Court disagrees.
The Second Circuit has held that "special circumstances beyond an individual's officer status or corporate duties, might warrant the imposition of personal liability for a corporation's ERISA obligations."
The Funds seek to hold the Hale defendants personally liable through traditional veil piercing.
To protect employee benefits under ERISA, courts in this Circuit "observe a general federal policy of piercing the corporate veil when necessary."
In conducting a veil piercing analysis, courts may consider the following factors to determine whether the first requirement, domination over the corporation, is met:
To support a finding of domination, the Funds assert Haldean failed to observe the formalities of corporate existence in that it did not hold annual meetings or elections of officers, file tax returns during the relevant time frame, or timely pay payroll taxes. The Funds further assert Haldean's corporate funds were used for personal purposes, as Haldean paid rent to North State Associates, a partnership co-owned by Robert Hale. Robert Hale thus arguably used Haldean assets to build equity in a real estate investment, rather than making benefit contributions. Haldean also made regular payments to Mass Mutual to repay a loan taken against Robert Hale's annuity.
The Hale defendants assert they did everything they could to keep Haldean afloat, and paid creditors as necessary to keep the business operational. The Hale defendants argue Haldean was a small, closely held corporation for which annual meetings and elections were not necessary. The Hale defendants also state they took no salary or compensation from Haldean during the relevant time frame; to the contrary, they infused personal funds, such as the loan against Robert Hale's annuity, into the business to their personal detriment.
The Funds offer scant evidence sufficient to meet the second prong of the inquiry. The Funds argue Florence Hale offered Wendy Santucci certain benefits, including a Christmas dinner and the use of Florence Hale's house in Florida. Such generosity could suggest ill intent, but it does not necessarily establish that the Hale defendants were deliberately abusing the corporate form to avoid Haldean's ERISA obligations.
On this record, a reasonable fact finder could conclude veil piercing is warranted, but the evidence is not sufficient to compel such a finding.
Accordingly, summary judgment is not appropriate on that basis.
The Funds next argue special circumstances are met because the Hale defendants committed fraud.
As set forth below, the Court concludes the evidence is not sufficient to support a finding of fraudulent conduct.
The Second Circuit has prescribed a two-part test to determine whether fraudulent conduct subjects an individual to liability for a corporation's ERISA violations. First, the individual must be a "controlling corporate official."
The Funds assert the Hale defendants made misrepresentations or omissions sufficient to support a finding of fraudulent conduct, including: the Hale defendants did not tell Haldean's employees that benefit contributions were not being paid; Florence Hale signed waivers of lien falsely indicating Haldean's employees were paid a certain wage plus benefits; Florence Hale obtained letters from the Funds' office stating Haldean was in good standing and used them to get paid for jobs; and Florence Hale caused Haldean employees to be taxed on vacation pay that was not remitted to the Funds.
These alleged misrepresentations and omissions are insufficient to establish common law fraud, as they were made to third parties, and there is no evidence the Funds relied on them.
Likewise, the Funds' argument that the Hale defendants' conduct amounts to fraudulent concealment is unavailing. To establish a claim of fraudulent concealment, the Funds must show they relied on a misrepresentation or omission.
Pursuant to the special circumstances doctrine, the same evidence that could support veil piercing could also support the imposition of alter ego liability on the Hale defendants. In
Although the Funds have presented sufficient evidence to support a finding of personal liability on an alter ego theory, summary judgment is not appropriate because there are genuine issues of material fact. For instance, the parties should have the opportunity to present evidence concerning Haldean's use of the proceeds of the loan from Robert Hale's annuity, or Haldean's observance of corporate formalities other than shareholders meetings or elections.
Accordingly, summary judgment that special circumstances warrant the imposition of personal liability on the Hale defendants is not appropriate.
Defendants' motion for summary judgment is GRANTED as to whether Haldean's unpaid benefit contributions are plan assets (except to the extent they were actually withheld from employees' wages but not remitted to the Funds), and DENIED in all other respects.
Plaintiffs' cross-motion for summary judgment is GRANTED as to (i) Haldean's liability for unpaid benefit contributions, and (ii) Florence Hale's status as an ERISA fiduciary. Plaintiffs' cross-motion is DENIED in all other respects.
All counsel are directed to appear at a status conference on December 22, 2017 at 10:30 a.m., at which time the Court will set a trial date and a schedule for pretrial submissions.
By December 21, 2017, the parties shall submit a Joint Pretrial Order in accordance with the Court's Individual Practices.
The Clerk is instructed to terminate the motion. (Doc. #110).
SO ORDERED: