Opinion
98 Civ. 7879 (JSR)(KNF)
September 25, 2002
REPORT and RECOMMENDATION
I. INTRODUCTION
In the instant action, Santo Lanzafame, in his fiduciary capacity as a trustee of the Stone Setters Pension Fund, Annuity Fund, Vacation Fund, and Journeyman Stone Setter Masons Union No. 84 ("Local 84") (hereinafter the "Funds" or "plaintiffs") alleges that the defendant, Cathedral Marble Granite, Inc. ("CMG"), failed to make monetary contributions to the Funds in accordance with: (a) a collective bargaining agreement it entered into with Local 84; and (b) the applicable provisions of the Employee Retirement Insurance Security Act ("ERISA"), 29 U.S.C. § 1001et seq.
Defendant failed to answer or to move with respect to the complaint plaintiffs filed with the Clerk of Court for this judicial district. Consequently, your Honor ordered that a default judgment be entered against the defendant. Thereafter, the matter was referred to the undersigned to conduct an inquest and to report and recommend the amount of damages, if any, that should be awarded to the Funds against the defendant.
The Court directed plaintiffs to serve and file proposed findings of fact and conclusions of law, as well as an affidavit(s) and an inquest memorandum setting forth their proof of damages, costs of this action, and their attorney's fees. Defendant was directed by the Court to serve and file opposing memoranda, affidavits and exhibits, as well as any alternative findings of fact and conclusions of law it deemed appropriate. The parties made submissions to the Court which have been reviewed and considered. Plaintiffs' submissions indicate that they are entitled to $116,708 in unpaid benefits contributions, $30,883.98 in interest, $23,341.66 in liquidated damages, $16,757.09 for attorney's fees, $47,093.03 in costs and disbursements and $2,400 in audit costs. The defendant has challenged plaintiffs' contentions respecting damages because, it maintains, plaintiffs relied improperly on an auditor's estimates to ascertain the amount of unpaid benefits contributions plaintiffs claim they are owed.
II. BACKGROUND AND FACTS
Based upon the submissions made by the parties, the Complaint filed in the action — the allegations of which, as a result of defendant's default, must be accepted as true, except those relating to damages, see Cotton v. Slone 4 F.3d 176, 181 (2d Cir. 1993); Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992) — and this Court's review of the entire court file in this action, the following findings of fact are made:
The Funds are jointly trusteed multi-employer plans that have been established pursuant to various collective bargaining agreements and by trust indentures. The Funds are also employee benefit plans. See 29 U.S.C. § 1002. CMG is a New York corporation with its principal place of business at 34-51 Vernon Boulevard, Long Island City, New York. It is an employer engaged in an industry affecting commerce within the meaning of 29 U.S.C. § 185, and an employer, as that term is defined at 29 U.S.C. § 1002(5).
CMG entered into an "Employer Agreement" with Local 84. Under the terms and conditions of that agreement, CMG was bound to a collective bargaining agreement between Local 84 and the Contracting Stone Setters Association, Inc. Local 84 later merged with another union, Local 1, and Local 1 assumed all collective bargaining agreements executed on behalf of Local 84. Through the Employer Agreement that CMG executed with Local 84, it was obligated to submit the requisite benefits contributions to the Funds on a monthly basis. CMG was also required to permit the Funds to audit its books and records so that the Funds might determine the amount of contributions owed to them by CMG.
In October 1998, counsel to the Funds notified CMG that it had failed to make timely benefits contributions to the Funds and, thus, was delinquent in its payments. When the delinquency was not rectified, the instant action was commenced.
In May 1999, the default judgment referenced earlier in this writing was signed by your Honor. Among other things, it required CMG to disclose to the plaintiffs its payroll and accounting records so that the plaintiffs might determine, through an audit of those books and records, the delinquent amount of benefits contributions owed to the Funds. The default judgment also provided that the amount determined to be due and owing the plaintiffs, based on the audit, would be enhanced by the addition of statutory liquidated damages of 20 percent of the amount of benefits contributions owed to the Funds. In addition, interest, statutory attorney's fees, costs and disbursements were also to be awarded to the plaintiffs.
In the event that CMG failed to disclose its books and records to the Funds, so that an audit might be conducted, the default judgment provided that plaintiffs would recover an amount to be determined by an estimate of the delinquent benefits contributions that would be based upon CMG's prior record of contributions. Furthermore, the default judgment provided that the estimated delinquent benefits contributions would be enhanced by statutory liquidated damages, in an amount equal to 20 percent of the estimated delinquent contributions, and that interest, statutory attorney's fees, costs and disbursements would also be awarded to the plaintiffs.
After the default judgment was executed by the court, plaintiffs sought to obtain defendant's books and records so that an audit might be performed. To that end, document requests were served upon: (a) CMG's three (3) corporate officers including Robert Panagios, who served as president of CMG from early 1998 through November 1999; (b) CMG's bookkeeper; and (c) its certified public accountant. Plaintiffs also deposed CMG representatives in an attempt to ascertain further the amount of delinquent benefits contributions that were owed to the Funds. Through these efforts, plaintiffs were able to secure some of CMG's pertinent records. However, a complete set of CMG's books and records was never produced to the plaintiffs.
Among the items CMG failed to provide to the plaintiffs were: 1) copies of records generated by payroll leasing companies to whom CMG paid $2,768,914 during the period January 1, 1997 through December 31, 1999; 2) copies of remittance reports filed with fringe benefit funds for other crafts; 3) copies of invoices and/or contracts indicating the scope of work performed by various subcontractors; 4) copies of CMG's Form 1120 corporate tax return for 1999; 5) copies of the contracts and/or invoices indicating the scope of work for CMG's project at the Marble Palace; and 6) copies of contracts and/or invoices indicating the scope of work performed for CMG by its subcontractor Stone World, Inc. In the absence of a complete set of CMG's books and records, plaintiffs' auditor relied upon three (3) things in attempting to determine the amount of unpaid benefits contributions owed to the Funds: a) CMG's withholding tax returns for the first and second quarter of 1998 and the 1999 IRS W-2 forms CMG issued to stone setters it employed; b) the revenue reflected in CMG's 1998 general ledger that CMG derived from its Marble Palace project, a project on which the Funds knew CMG had performed work covered by the collective bargaining agreement between the Brick Layers and Allied Craftsman Local Union No. 1, New York (formerly Journeyman Stone Setter Masons Union No. 84) and CMG for stone setting; and c) the value of the contract work covered by the above-noted collective bargaining agreement that CMG performed on three (3) projects of the New York School Construction Authority.
The record establishes that CMG used the services of a professional employer organization(s) which plaintiffs have characterized as a payroll leasing company. The record indicates further that CMG would prepare a time sheet listing its employees' names, the hours they worked, their classification(s) and their work site location(s). CMG would forward that document to the payroll leasing company. The payroll leasing company would then generate payroll checks for CMG's employees. See Exhibit M to the Affidavit of William E. Nagle in support of plaintiffs' damages claim.
The analysis of CMG's disclosed payroll records made by plaintiffs' auditor revealed that benefits contributions of $60,748.63 owed by CMG for several of its stone setter employees were not paid. However, plaintiffs' auditor discovered that the CMG records he reviewed contained discrepancies. For example, the auditor found that employees for whom CMG remitted benefits contributions were not included in CMG's quarterly tax withholding returns. In addition, the auditor determined, from his review of CMG's quarterly tax withholding reports for the first two quarters of 1998, that CMG's in-house payroll for that same period was $114,968.20. However, CMG paid payroll leasing company fees in excess of $1,000,000.00 in 1998. The discrepancies the auditor uncovered led him to conclude that CMG's internal payroll records understated significantly the amount of benefits contributions the Funds were owed. Consequently, the auditor determined to estimate the amount of benefits contributions CMG owed the Funds based upon: (i) the contract price for covered work on the New York School Construction Authority projects; and (ii) the revenue CMG received during 1998 for contract work it performed on the Marble Palace project.
With respect to the Marble Palace project, the auditor divided the revenue for the project reflected in CMG's general ledger by 1/3, the standard labor factor for CMG's contract work. This exercise enabled the auditor to determine what portion of the project revenue was subject to assessment for benefits contributions, that is, the "assessable portion." The "assessable portion" was then divided by the applicable hourly wage rate to ascertain the number of assessable hours for stone setting work. Through this process, the auditor estimated that $35,619.99 in assessable contributions were allocable to the Marble Palace project. Using a similar process with respect to the contract price that CMG proposed for the stone setting work on the New York School Construction Authority projects, the auditor estimated that $20,339.64 in assessable contributions could be attributed to those projects.
The Funds maintain that they are permitted to rely upon their auditor's estimate of the benefits contributions owed to them because CMG failed to maintain and disclose to the Funds complete and accurate books and records so that a precise accounting of the benefits contributions owed the Funds could be ascertained. For its part, CMG contends that the Funds have not demonstrated that it failed to maintain complete and accurate records, only that CMG was unable to produce fully its records because they appear to have been lost, misplaced or destroyed. CMG contends further that, since no evidence exists that it willfully concealed or destroyed its books and records, the plaintiffs have not established the predicate for estimating the amount of benefits contributions owed the Funds, at least with respect to the New York School Construction Authority projects and the Marble Palace project; accordingly, CMG maintains, the Court should not base its determination concerning the amount of delinquent benefits contributions owed to the Funds on the auditor's estimate.
III. CONCLUSIONS OF LAW
ERISA section 515 states that "[e]very employer who is obligated to make contributions to a multiemployer 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 and conditions of such plan or such agreement." See 29 U.S.C. § 1145.
ERISA Section 502(g)(2) governs the enforcement of section 515. Section 502(g)(2) provides:
In any action under this subchapter by a fiduciary for or on behalf of a plan to enforce section 1145 of this title in which a judgment in favor of the plan is awarded, 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 Federal or State law) of the amount determined by the court under subparagraph (A),
(D) reasonable attorney's fees and costs of the action, to be paid by the defendant, and
(E) such other legal or equitable relief as the court deems appropriate.
For purposes of this paragraph, interest on unpaid contributions shall be determined by using the rate provided under the plan, or, if none, the rate prescribed under section 6621 of Title 26.See 29 U.S.C. § 1132(g)(2).
These provisions were enacted to enable benefit plan participants and beneficiaries to protect their plan's solvency when employers fail to make the requisite financial contributions to the benefit plan(s) and, thereby, do not fulfill their collective bargaining and trust agreement obligations. See Benson v. Brower's Moving Storage, Inc., 907 F.2d 310, 313 (2d Cir. 1990) (stating that "benefit plans must be able to rely on the contribution promises of employers because plans must pay out to beneficiaries whether or not employers live up to their obligations"); Trustees of Four Joint Boards v. Penn Plastics, Inc., 864 F. Supp. 342, 345-47 (S.D.N.Y. 1994) (observing that, pursuant to ERISA § 515, "the Circuit Courts of Appeals have consistently held employers to their promises to contribute to multiemployer plans as set forth in written agreements").
Defendant has violated its contractual obligation to Local 84 (and subsequently Local 1) by failing to make benefits contributions to the Funds: Therefore, plaintiffs' submissions establish that the defendant violated 29 U.S.C. § 1145.
Estimated Unpaid Benefit Contributions
Pursuant to 29 U.S.C. § 1132(g)(2), plaintiffs are entitled to an award representing the amount of unpaid benefits contributions. Plaintiffs contend that CMG owes the Funds $116,708 in estimated unpaid benefits contributions for a period commencing with the first quarter of 1998 and ending in February 2002. (See Exhibit P to the Affidavit of William E. Nagel.)
An employer is required by ERISA to maintain records so that employees and employee benefits plans can determine the benefits due or which may become due to the beneficiaries of the benefits plans. See 29 U.S.C. § 1059(a)(1). Where the employer has failed to meet this obligation, an auditor's estimate of the amount of benefits contributions owed has been found to be a permissible method for fixing damages in an action to recover delinquent benefits contributions. See Mo-Kan Teamsters Pension Fund v. Creason, 716 F.2d 772, 777-778 (10th Cir. 1984). Furthermore, the default judgment issued by your Honor in May 1999, expressly permits plaintiffs to have judgment against CMG based upon an estimate of the delinquent contributions owed the Funds, if CMG failed to produce its payroll and accounting books and records to the plaintiffs for auditing by the Funds. Since the Funds were authorized to estimate the amount of benefits contributions they were owed, if CMG failed to produce fully its books and records, and the Funds did no more than they were authorized by the court to do, CMG's objection to plaintiffs' reliance upon their auditor's estimate of the amount of benefits contributions due the Funds is without merit.
Inasmuch as the defendant has not challenged the actual calculation of the amount of delinquent contributions owed, only the methodology employed by the auditor, the Court finds that the plaintiffs have reasonably established that the Funds are entitled to an award of damages totaling $116,708 in unpaid benefits contributions.
Interest
By statute, plaintiffs have a right to interest on the unpaid benefits contributions, since once it is determined that an employer has failed to make contributions to an employee benefit fund, as required by a collective bargaining agreement, an award of interest is mandatory. See Mason Tenders Dist. Council v. Envirowaste and Transcontractors, Inc., No. 98 Civ. 4040, 1999 WL 370667, at *2 (S.D.N.Y. June 7, 1999) (citing 29 U.S.C. § 1132[g][2][B] [requiring award of interest on unpaid contributions to trust fund that prevails against employer on ERISA § 515 claim]). The interest is to be calculated from the date the payments first became due. See Envirowaste and Transcontractors, Inc., 1999 WL 370667, at *2 (citing Mason Tenders Dist. Council Welfare Fund v. Mackroyce Constr. Corp., No. 96 Civ. 4693, 1998 WL 193075, at *2 [S.D.N.Y. Apr. 22, 1998]).
ERISA section 502(g)(2) states, in pertinent part, that "interest on unpaid contributions shall be determined by using the rate provided under the plan, or, if none, the rate prescribed under section 6621 of Title 26." See 29 U.S.C. § 1132(g)(2). Section 6621 of Title 26 provides, in pertinent part: "The underpayment rate established under this section shall be the sum of . . . the Federal short-term rate determined under subsection (b), plus . . . 3 percentage points." See 26 U.S.C. § 6621(a)(1). Subsection (b) of section 6621 states that "[t]he Secretary shall determine the Federal short-term rate for the first month in each calendar quarter." See 26 U.S.C. § 6621(b).
In the case at bar, plaintiffs have calculated interest based upon the rate of interest set forth in New York's Civil Practice Law and Rules ("CLPR"), nine percent. However, plaintiffs' reliance on the statutory rate of interest found in the CPLR is misplaced. Since the relevant collective bargaining agreement does not fix a rate of interest to be paid on delinquent benefits contributions, the rate prescribed by 26 U.S.C. § 6621 applies. See Bricklayers Dist. Council Welfare Fund v. Pony Masonry Construction Co., Inc., No. 92 Civ. 1663, 1995 WL 693262, at *2-3 (S.D.N.Y. Nov. 22, 1995). In order to determine what that rate should be, the Court requires evidence establishing the Federal short-term rate in effect at the time the instant complaint was filed. Since the record before the Court is devoid of such evidence, the Court lacks sufficient information to determine the correct rate of interest to be applied in this case.
Based on plaintiffs' failure to provide the Court with satisfactory evidence establishing the correct rate of interest to be applied in this case, CMG should not be required to pay interest on damages awarded to the plaintiffs.
Liquidated Damages
By statute and Article 24 of the parties' collective bargaining agreement, plaintiffs are entitled to liquidated damages for defendant's failure to make the required contributions to the Funds. See 29 U.S.C. § 1132(g)(2)(C); Envirowaste and Transcontractors, Inc., 1999 WL 370667, at *2 (citing Iron Workers Dist. Council of Western New York and Vicinity Welfare and Pension Funds v. Hudson Steel Fabricators Erectors, Inc., 68 F.3d 1502, 1506 [2d Cir. 1995] [stating that an award of statutory penalties is mandatory]).
Section 502 of ERISA provides that the amount of statutory damages to be awarded in an action to collect delinquent benefits contributions is equal to the greater of the interest awarded on the unpaid contributions or liquidated damages specified under a fund plan, in an amount not in excess of 20 percent. See 29 U.S.C. § 1132(g)(2). Plaintiffs claim liquidated damages in the amount of $23,341.66, 20 percent of the estimated unpaid benefits contributions. Inasmuch as the parties' collective bargaining agreement is silent with respect to the applicable rate of liquidated damages, and the Court has determined that an award of liquidated damages equal to 20 percent of the estimated unpaid benefits contributions should be made, plaintiffs should recover $23,341.60 from CMG in liquidated damages. Costs and Attorney's Fees
Plaintiffs contend that $23,341.66 in liquidated damages should be awarded. The Court finds that 20 percent of $116,708 is $23,341.60.
An award of costs and reasonable attorney's fees, in an action such as this, to recover unpaid union benefits contributions, is mandatory. See 29 U.S.C. § 1132(g)(2); see also, Bricklayers Dist. Council Welfare Fund v. Pony Masonry Construction Co., Inc., 1995 WL 693262, at *3-4 (citations omitted).
When fixing a reasonable rate for attorney fees, it is appropriate for a court to consider and to apply the prevailing market rates in the relevant community for similar legal work of lawyers of reasonably comparable skill, experience and reputation. See Blum v. Stenson, 465 U.S. 886, 895 n. 11, 104 S.Ct. 1541, 1547 n. 11 (1984). In addition, it is permissible for a court to rely upon its own knowledge of private firm hourly rates in deciding what reasonable attorney fees are in the community. Miele v. N.Y. State Teamsters Conf. Pens. Retirement Fund, 831 F.2d 407, 409 (2d Cir. 1987).
In the Second Circuit, a party seeking an award of attorney's fees must support that request with contemporaneous time records that show, "for each attorney, the date, the hours expended, and the nature of the work done." New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1154 (2d Cir. 1983). Attorney fee applications that do not contain such supporting data "should normally be disallowed." Id. at 1154. Disallowance is permitted notwithstanding the mandatory language found at 29 U.S.C. § 1132(g)(2)(D). See Plumbers Local No. 371 Joint Plumbing Indus. Bd. Pension Fund v. Frank Liquori Plumbing and Heating, Inc., No. 95 Civ 2892, 1996 WL 445065, at *5 (E.D.N.Y. June 26, 1996).
In prosecuting this action against CMG, the Funds engaged the service of the law firm Holm O'Hara LLP. The Funds have submitted monthly invoices they received from their counsel for the legal services the Funds were provided. (See Exhibit P to the Affidavit of William E. Nagel.) However, contemporaneous time records for the relevant law firm personnel, as required in this judicial circuit, describing for each attorney who participated in the prosecution of this action, the date on which the service(s) was provided by the attorney(s); the hours expended by the individual attorney(s); and the nature of the work performed by the attorney(s) were not provided to the Court. (See Exhibit P to the Affidavit of William E. Nagel.) In the absence of contemporaneous time records that provide the requisite data needed to support an award of attorney's fees, no such award should be made.
With respect to the costs incurred by the Funds in prosecuting this action, the invoices that comprise Exhibit P to the Affidavit of William E. Nagel also failed to provide sufficient information upon which the Court could rely in determining whether an award of the costs in the amount sought by plaintiffs would be appropriate. For example, plaintiffs claim to have incurred costs associated with their use of a facsimile machine(s). However, no information was provided that identifies what item(s) was transmitted via facsimile, to whom it was transmitted and how, if at all, the transmission(s) was related to this litigation. Without this type of detailed information, it is not possible for the Court to determine whether the costs incurred by the Funds were reasonable and appropriate. Under these circumstances, except as noted below, plaintiffs' costs should not be recovered from CMG.
Audit Costs
Perforce of 29 U.S.C. § 1132(g)(2)(E) and Article 24 of the parties' collective bargaining agreement, the audit costs plaintiffs incurred in attempting to ascertain the amount of delinquent benefits contributions owed the Funds may be recovered from CMG. The record evidence establishes that plaintiffs engaged Kobgo Associates, Inc. to perform an audit of CMG's books and records. The record evidence also establishes that the Funds incurred $2,400 in costs associated with the audit. (See Exhibit L to the Affidavit of William E. Nagel.)
Based upon the Court's review of the submissions by the Funds, the Court finds that $2,400 in auditing costs were reasonably incurred by plaintiffs and should be awarded the Funds.
IV. RECOMMENDATION
For the reasons set forth above, plaintiffs should be awarded $142,449.60: $116,708, in delinquent benefits contributions, $23,341.60, in liquidated damages; and $2,400 in audit costs.
V. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also, Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Jed S. Rakoff, 500 Pearl Street, Room 1340, New York, New York, 10007, and to the chambers of the undersigned, 40 Foley Square, Room 540, New York, New York, 10007. Any requests for an extension of time for filing objections must be directed to Judge Rakoff. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988);McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).