Filed: Nov. 07, 2006
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 2006 Decisions States Court of Appeals for the Third Circuit 11-7-2006 Byrne v. Calastro Precedential or Non-Precedential: Non-Precedential Docket No. 05-2153 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006 Recommended Citation "Byrne v. Calastro" (2006). 2006 Decisions. Paper 238. http://digitalcommons.law.villanova.edu/thirdcircuit_2006/238 This decision is brought to you for free and open access by the Opinions of the Unite
Summary: Opinions of the United 2006 Decisions States Court of Appeals for the Third Circuit 11-7-2006 Byrne v. Calastro Precedential or Non-Precedential: Non-Precedential Docket No. 05-2153 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006 Recommended Citation "Byrne v. Calastro" (2006). 2006 Decisions. Paper 238. http://digitalcommons.law.villanova.edu/thirdcircuit_2006/238 This decision is brought to you for free and open access by the Opinions of the United..
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Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
11-7-2006
Byrne v. Calastro
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-2153
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006
Recommended Citation
"Byrne v. Calastro" (2006). 2006 Decisions. Paper 238.
http://digitalcommons.law.villanova.edu/thirdcircuit_2006/238
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2006 Decisions by an authorized administrator of Villanova
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 05-2153 and 06-3129
PATRICK BYRNE, as Trustee of the Laborers' International
Union of North America Local 734 Pension Fund
and Laborers' International Union of North America
Local 734 Welfare and Educational Fund;
PAUL DRAZEN, as Trustee of the Laborer' International
Union of North America Local 734 Pension Fund
and Laborers' International Union of North America
Local 734 Welfare and Educational Fund
v.
LOUIS CALASTRO; SALVATORE SALERNO;
MICHAEL ROSADO; JOSEPH GAMBARDELLA; PETER RIZZO;
JOHN FRITZSCH; AUGUST VERGALITO; RHODA VERGALITO;
JAMIE DOLAN; EDWARD DOLAN; BERNARD DWYER;
ISAAC BAROCUS, a/k/a IRVING BAROCUS; FRANK PERNICE;
CHARLES J. PURCELL; CJP ACCOUNTING, INC.;
PURCELL ORGANIZATION, INC.; DENNIS J. JASTRZEBSKI, DDS;
JOHN DOES 1-26; ABC CORPORATION 1-26;
DANIEL CASTIGLIONE; CHRISTOPHER SABATELLA
Louis Calastro; Salvatore Salerno;
Michael Rosado; Joseph Gambardella; Peter Rizzo,
Appellants Case No: 05-2153
PATRICK BYRNE, as Trustee of the Laborers' International
Union of North America Local 734 Pension Fund and Laborers'
International Union of North America Local 734 Welfare and
Educational Fund; PAUL DRAZEN, as Trustee of the Laborer'
International Union of North America Local 734 Pension Fund
and Laborers' International Union of North America Local 734
Welfare and Educational Fund
v.
LOUIS CALASTRO; SALVATORE SALERNO; MICHAEL ROSADO;
JOSEPH GAMBARDELLA; PETER RIZZO; JOHN FRITZSCH;
AUGUST VERGALITO; RHODA VERGALITO; JAMIE DOLAN;
EDWARD DOLAN; BERNARD DWYER; ISAAC BAROCUS a/k/a Irving Barocus;
FRANK PERNICE; CHARLES J. PURCELL; CJP ACCOUNTING INC;
PURCELL ORGANAZATION, INC.; JOHN DOES 1-26; ABC CORPORATION 1-26;
DENNIS J. JASTRZEBSKI, DDS; ABC CORP, 1-26; DANIEL CASTIGLIONE;
CHRISTOPHER SABATELLA; PETER RIZZO; ULICO CASULTY COMPANY;
STATE NATIONAL INSURANCE COMPANY; TERENCE M. O'SULLIVAN,
Individually and as General President of LIUNA; RAYMOND POCINO
Louis Calastro; Michael Rosado,
Joseph Gambardella; Peter Rizzo,
Appellants Case No: 06-3129
Appeals from the United States District Court
for the District of New Jersey
(D.C. Civil No. 05-cv-00068)
District Judge: Honorable Dennis M. Cavanaugh
Submitted Under Third Circuit LAR 34.1(a)
September 26, 2006
Before: RENDELL, GARTH and ROTH, Circuit Judges.
(Filed: November 7, 2006)
OPINION OF THE COURT
RENDELL, Circuit Judge.
Appellees Patrick Byrne and Paul Drazen, as trustees of the Laborers’ International
Union of North America Local 734 Pension Fund and Welfare and Educational Fund,
filed this action against appellants Louis Calastro, Salvatore Salerno, and Peter Rizzo for
2
breach of fiduciary duty, conversion of assets, fraud, breaches of employment
agreements, and violations of good faith and fair dealing, all arising under ERISA, 29
U.S.C. §§ 1104, 1106, and 1109, and New Jersey common law.1 Appellants held
fiduciary positions in two union funds (the “Funds”) governed by ERISA, 29 U.S.C. §
1002. The District Court entered a preliminary injunction removing Calastro and Salerno
as employer-trustees and Rizzo as fund administrator of the Funds. Calastro, Salerno, and
Rizzo have appealed the entry of the preliminary injunction.
The District Court had jurisdiction over the action pursuant to the Employee
Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1132, and 28 U.S.C. §
1331. We have jurisdiction to review the interlocutory order of the District Court
pursuant to 28 U.S.C. § 1292(a)(1). We review the District Court’s denial of a request for
a preliminary injunction to determine “whether there has been an abuse of discretion, a
clear error of law, or a clear mistake in the facts.” McKeesport Hosp. v. Accreditation
Council for Graduate Med. Educ., 24 F.3d 519, 532 (3d Cir. 1994) (citing Hoxworth v.
Blinder, Robinson & Co.,
903 F.2d 186, 198 (3d Cir. 1990)).
I.
In or about November 2003, counsel for the Union and, at the time, for the Funds,
Albert Kroll, allegedly learned from an anonymous law enforcement officer of no-show
jobs and inflated employee salaries at the Funds. He shared this information with Patrick
1
The complaint alleged claims against a number of other defendants, but the
preliminary injunction involved only these three defendants, and only they have appealed.
3
Byrne, the deputy supervisor of the Union. In July or August 2004, Byrne retained the
accounting firm of Schultheis & Panettieri, LLP to conduct an operational audit of the
Funds, but had difficulty obtaining documents from the Funds for the audit. Finally the
firm prepared an on-site document review near the end of September 2004. The
preliminary results of the audit detailed several unnecessary or overpaid positions at the
Funds and an unnecessary satellite office.2
These preliminary results were not shared with any of appellants until November
12, 2004. On November 11, 2004, however, new counsel to the Funds, Angelo Bisceglie,
already had learned of these problems and had initiated action to correct them.
In October 2004, the General President of the Laborers’ International Union of
North America informed the Union that an emergency trusteeship had been imposed on
Local 734 “because of various administrative problems within the Local’s benefit funds.”
2
By the time of the preliminary injunction hearing, the following specific problems
had been identified:
• Edward Dwyer was paid $119,600 per year plus use of a company vehicle to
administer a $25,000 scholarship fund (A730);
• Isaac Boracus was paid $123,000 annually for duplicative and unnecessary
position involving only “coordinating paperwork in the [satellite] office” and
“assisting Dwyer with scholarships” (A730);
• Bricktown, NJ satellite office contained non-functioning computers and the
cost of maintaining the office could not be justified (A729-30);
• CJP Accounting Services, Inc. was paid $158,600 annually under a no-bid
contract to perform routine bookkeeping services (A1178-84);
• Dr. Dennis Jastrzebski was paid $123,525 annually for six hours of work per
week of in-house dental consulting under a no-bid contract (A1273-74);
• Jamie Dolan and Rhoda Vergalito were paid a combined salary of $126,240 for
the year 2003 to answer phones at a little-used toll-free number, which worked
out to an average of $1315 per call (A1272).
4
A86-87. In November and December 2004, an emergency trusteeship hearing was held.
At the conclusion of the hearing, Independent Hearing Officer (“IHO”) Peter Vaira
issued a Final Order and Memorandum, which found that there were a number of the
unnecessary or overpaid positions or positions of power within the Unions and that many
of them were held by persons related to or associated with a Mr. Auggie Vergalito, a man
with suspected ties to organized crime.3 A104. The IHO concluded that the “breach of
duty on the part of the Union Trustees is so extensive that it is sufficient grounds for a
trusteeship over the Local Union. . . . At the very least, the union trustees abandoned
their independence, and breached their fiduciary duty to the Funds.” A116.
Plaintiffs/appellees brought the instant action in January 2005, and moved for a
preliminary injunction removing Calastro, Salerno, and Rizzo from their positions with
the Funds. The District Court issued an order for expedited discovery. A192, A1201.
Appellants moved for a protective order staying their depositions in order to preserve
their Fifth Amendment rights in a parallel criminal investigation being conducted into the
same conduct at issue in the civil action. The Magistrate Judge stayed appellants’
depositions but otherwise ordered discovery to continue as usual. A404. Shortly
thereafter, the Magistrate Judge granted the plaintiffs’ motion to strike appellants’ own
affidavits. A405-06. Appellants also submitted affidavits prepared by counsel. A449,
3
Relatives and close associates to Auggie Vergalito holding positions in the Union
and with the Funds during the relevant time period were Rhoda Vergalito, Jamie Dolan,
Edward Dolan, John Fritzsch, Edward Dwyer, Peter Rizzo, Issac Barocus, and Daniel
Castiglione. A104.
5
A1135, Gray Br. 7-8. In April 2005, the District Court held a preliminary injunction
hearing and granted the plaintiffs’ motion for the preliminary injunction removing the
three appellants. A1297-1363; A8-18. The District Court also appointed a substitute
employer trustee. A19.
II.
While the District Court was able to consider “an overwhelming amount of
documentary support for [plaintiffs’] allegations concerning excessive expenditures and
salaries,” it noted that “the record is almost completely devoid of any facts contradicting
Plaintiffs’ assertions.” Dist. Ct. Op. (Letter) at 8-9, A14-15. The District Court noted
that the appellants had proffered their own affidavits. However:
Here, Defendants’ raising of the issue of their Fifth Amendment privileges
against self-incrimination has resulted in their version of the facts being
stricken from the record before the Court. The Court thus bases its rulings
on the undisputed facts presented by Plaintiffs’ written submissions.
A11 n.2.
Appellants contend on appeal that they did not assert their Fifth Amendment
rights. However, appellants themselves sought to stay discovery in the District Court
pending the completion of the criminal investigation, expressly citing their Fifth
Amendment rights. Furthermore, they presented this argument in the preliminary
injunction hearing, and the District Court pointed out that although the Magistrate Judge
had granted the stay of appellants’ depositions, appellants could not claim they did not
know of the impending preliminary injunction hearing. A1322-23. Appellants did not
6
ask the District Court for more time to complete discovery. A1329. Moreover, the
District Court stated that no adverse inference was being drawn from appellants’ exercise
of their Fifth Amendment rights. A1324.
Appellants do not contest the Magistrate Judge’s ruling striking their affidavits.
However, they complain that the District Court should have considered affidavits
submitted by their attorneys Bisceglie and Grossman, as well as the letter brief from
Bisceglie to the District Court submitted previously in opposition to the TRO.
At the preliminary injunction hearing on April 4, 2005, appellees argued that the
attorney certifications submitted by defendants contained argument in violation of D.N.J.
Civ. R. 7.2. Although it appears that no ruling was expressly rendered on this argument,
the District Court did state that much of the Bisceglie affidavit contained argument and
stated that it might violate the local rule. A1314, A1330. Moreover, the District Court
stated in the preliminary injunction hearing that no evidence had been submitted by
appellants and based its ruling in its written opinion on the “undisputed facts presented by
Plaintiffs’ written submissions.” A11 n.2, A1316. On the record, therefore, it appears
that the District Court did not place much weight on the attorney affidavits.
Apparently conceding that the attorneys’ affidavits were at least partially
improper, appellants argue that the District Court should have disregarded the challenged
portions and considered what remained, as is provided in the local rule, D.N.J. Civ. R.
7.2. However, appellants do not identify which portions of the affidavits could be
properly considered. Furthermore, even assuming some information in the attorney
7
affidavits could have been properly considered but was not, appellants do not identify,
and we do not find, facts that would have effectively countered the evidence provided by
appellees in support of their motion for the preliminary injunction.
Although they argue that the District Court prematurely granted the preliminary
injunction, appellants do not argue they were prevented from submitting exculpatory
evidence, nor did they seek additional discovery. Presumably they would have been in
possession of any existing documentation demonstrating their efforts to ensure
appropriate expenditures by the Funds in the areas in question. Nevertheless, aside from
the attorney affidavits, appellants submitted “virtually nothing . . ., or very little, . . . that
would argue otherwise on their behalf.” Tr. of Prelim. Injunct. Hearing, A1306. We
conclude that the preliminary injunction was not entered prematurely.
III.
We turn to whether the preliminary injunction was properly granted. The District
Court should consider four factors in evaluating a party’s motion for preliminary
injunction:
(1) whether the movant has shown a reasonable probability of success on
the merits; (2) whether the movant will be irreparably injured by denial of
the relief; (3) whether granting preliminary relief will result in even greater
harm to the nonmoving party; and (4) whether granting the preliminary
relief will be in the public interest.
Allegheny Energy, Inc. v. DQE, Inc., 171 F.3d 153, 158 (3d Cir. 1999).
A. Reasonable Probability of Success on the Merits.
Appellants urge that fiduciaries should be removed only in limited circumstances,
8
and that the District Court’s ruling was pre-mature, and should have only been made after
further discovery and trial. We disagree as to the latter point and, further, conclude that
the facts here fall within the circumstances likely to warrant removal of the fiduciaries.
ERISA fiduciaries are required to discharge their duties “solely in the interest of
the participants and beneficiaries” and “for the exclusive purpose of: (i) providing
benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of
administering the plan.” 29 U.S.C. § 1104(a)(1)(A), updated PL 109-280, 2006 HR 4
(August 17, 2006). They are held to an objective standard of care. 29 U.S.C. §
1104(a)(1)(B). An ERISA fiduciary who breaches any of his responsibilities, obligations,
or duties is subject to equitable or remedial relief, including removal, in addition to
personal liability. 29 U.S.C. § 1109. A participant, beneficiary, or other fiduciary may
bring a civil action for an injunction or other equitable relief for violations or enforcement
of ERISA. 29 U.S.C. § 1132.
Appellants do not deny that there were excessive expenditures made by the Funds.
See, e.g., Appellants’ Reply Br. at 8. Indeed, when these excessive expenditures were
brought to light, the trustees quickly implemented changes on the advice of their attorney.
Appellants contend, however, that a decision by the Court of Appeals for the Second
Circuit in Katsaros v. Cody, 744 F.2d 270, 281 (2d Cir. 1984), indicates that removal of
fund trustees is appropriate under ERISA only “when they have engaged in ‘repeated or
substantial violations of their responsibilities,’” (internal citation omitted).
Appellants’ arguments under Katsaros appear to be: (1) that there was no
9
evidence that they knew of the excessive expenditures; and (2) that because they were
eliminated prior to appellees’ filing for the preliminary injunction, there was no evidence
of any ongoing breaches of fiduciary responsibilities.
However, as the District Court pointed out, ERISA does not require a showing of
bad faith. Dist. Ct. Op. at 8, A14. ERISA fiduciaries are held to an objective standard of
care. 29 U.S.C. 1104(a)(1)(B). Accordingly, it seems it was within the District Court’s
discretion to find that the violation of duty was substantial, as the trustees permitted the
Funds to spend hundreds of thousands of dollars in return for little or no benefit, and there
clearly were several instances in which they did not act responsibly. Thus, it was not an
abuse of discretion or clear error as to the facts, or an error of law, for the District Court
to find the plaintiffs had a reasonable probability of success on the merits.
B. Irreparable harm.
The District Court stated that because defendants could not take part in civil
discovery in this case:
a number of serious questions about possible financial misconduct go
unanswered, undermining the confidence of Local 734 members in the
fiduciaries who are supposed to protect their interests. As such, in light of
the grave allegations at issue here and the negative impact on the reputation
of the Funds in the eyes of plan participants and beneficiaries, the Court
finds that Plaintiffs have made an adequate showing that they will be
irreparably harmed.
A16.
In essence, appellants argue that there was no evidence that the harms alleged still
existed at the time the preliminary injunction was entered and that legal damages would
10
have been sufficient to remedy any remaining alleged wrongs. Moreover, they argue, the
District Court’s finding of irreparable harm on the Funds’ reputation and image was
without evidentiary foundation.
Reputation and image in the context of irreparable harm were discussed at the
preliminary injunction hearing. A1321. At least one other Court of Appeals and several
district courts have found these harms sufficient for preliminary injunction purposes. See,
e.g., Int’l Brotherhood of Teamsters v. Local Union No. 810, 19 F.3d 786, 794 (2d Cir.
1994). The Court of Appeals for the Second Circuit found in one case that the nature of
the “financial malpractice and undemocratic procedures severely test the allegiance of
union members to their chosen leaders . . . a particularly serious matter in light of the
union’s history of corruption and its current efforts to establish confidence.”
Id.
Similarly, the evidence here demonstrates financial irresponsibility, at the very least. The
allegations go beyond irresponsibility, however. Appellants are accused of wasting
assets, favoritism and of having ties to organized crime. Because of the pending criminal
investigation, discovery in this matter cannot be fully developed. In light of the serious
questions which will likely surround appellants’ performance of their fiduciary duties for
some time, we cannot say that the District Court’s decision on this prong is an abuse of
discretion or clear mistake.
C. Balance of Hardships and Public Interest
Appellants argue that the balance of hardships should have tipped in their favor:
Rizzo has lost his job and his livelihood; Calastro can no longer oversee administration of
11
the Funds of which his own employees are beneficiaries; and Calastro and Salerno’s
reputations will be tarnished. With regard to the public interest, appellants argue that the
Funds were profitable under their supervision, a status which is jeopardized by the
District Court’s decision.
The District Court determined that any harm to defendants as a result of the loss of
their livelihoods could be remedied by reinstatement and back pay. It appointed a
substitute employer trustee to ensure continuing representation of employers’ interests
within the Funds’ administration. There was no discussion of the trustees’ reputations.
The District Court found that ERISA evinced a congressional determination that
employee benefit plans are in the national public interest and that there is a public interest
in ensuring honest management of the Funds. Thus, in light of plaintiffs’ demonstration
of reasonable likelihood of success on the merits and irreparable harm to the Funds’
participants and beneficiaries, the District Court determined that the public interest
weighed more heavily in favor of granting the preliminary injunction. A17. Moreover, in
the preliminary injunction hearing, the District Court noted that although the Funds had
been profitable under the defendants’ supervision, the argument could be made that
absent the alleged breach of fiduciary duty, they would have been even more so. A1316.
We will not disturb the District Court’s reasoning in this regard.
Appellants also make an argument (Argument IV) that reversal is in order because
the District Court should have considered that attorney Kroll, former counsel for the
Funds and present counsel for appellees, had a conflict of interest and should have been
12
disqualified. This issue was later decided by the District Court’s ruling denying
appellants’ disqualification motion, and was appealed to our Court, as Case Number 06-
3129. We have recently consolidated the appeal in that case with this appeal. We have
also received, and have considered, supplemental briefing from the parties as to why Case
Number 06-3129 should not be dismissed for lack of jurisdiction based on lack of finality.
Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368 (1981) (order refusing to disqualify
attorney is not final order). Because the issue presented in Argument IV is more properly
presented as an appeal from an order, and now has been so presented, we will not
consider Argument IV in Case No. 05-2513. However, having considered the parties’
submissions, we will dismiss the appeal in Case No. 06-3129 for lack of jurisdiction.
In sum, the District Court did not abuse its discretion, or make any clear error of
fact, or legal error, in granting the preliminary injunction. Accordingly, we will affirm in
Case No. 05-2513. We will also dismiss the appeal in Case No. 06-3129.
13
