Summary
holding on summary judgment that defendant was fiduciary based, inter alia, on his testimony that he made all payment decisions on behalf of company
Summary of this case from Trs. of the N.Y.C. Dist. Council of Carpenters Pension Fund v. Metro. Enters., Inc.Opinion
10 Civ. 1371 (KBF)
01-05-2012
SHEET METAL WORKERS' NATIONAL PENSION FUND, et al., Plaintiffs, v. AUL SHEET METAL WORKS INC. and YVES JEROME, as an individual, Defendants.
MEMORANDUM AND ORDER
:
Plaintiffs, five employee-benefit plans (the "Benefit Funds"), brought this action for violation of Section 515 of ERISA, 29 U.S.C. § 1145, conversion and breach of fiduciary duty, against defendants AUL Sheet Metal Works Inc. ("AUL") and its sole director, officer and shareholder, Yves Jerome. Plaintiffs' claims relate to Defendants' alleged failure to make contributions in the amount of $526,033 to the Benefit Funds during the period from October 1, 2007 to December 31, 2009. Plaintiffs also allege that instead of making those required contributions, Defendants prioritized payments to creditors and, therefore, have converted sums due and owing. For the same reason, Plaintiffs allege Defendants breached their fiduciary duties owed to the Benefit Funds and are each liable as a result, including defendant Jerome in his personal capacity.
Plaintiffs have moved, and Defendants have cross-moved, for summary judgment on each of the claims. For the reasons set forth below, Plaintiffs' motion is GRANTED, and Defendants' motion is DENIED.
BACKGROUND
Defendant Jerome ran AUL for close to two decades, providing sheet metal services to the construction industry and employing a number of sheet metal workers over that period. (Reply to Defendants' Counterstatement of Material Facts 1-3; Decl. of Jeffrey S. Dubin ("Dubin Decl.") Ex. K at 39-40.) The recession and real estate crash that began in 2007 had a severe, negative impact on AUL, making it difficult for it to pay its employees, suppliers and creditors. AUL ceased operations in August 2010, no longer employs sheet metal workers and is winding down its affairs. (Decl. of Yves Jerome ("Jerome Decl.") ¶ 52-53.)
Dubin Decl. Ex. K is the transcript of the August 6, 2008 deposition of defendant Jerome, conducted under oath in a prior litigation between the same parties. Defendant Jerome has agreed that the facts contained in that transcript are accurate and may be used as evidence for purposes of the instant action. (See Dubin Decl. Ex. J.)
Defendant Jerome has conceded that, while a going concern, AUL's sheet metal workers were members of Sheet Metal Workers' International Association, Local Union No. 28 ("Local 28"). (Id. ¶ 53; see also Dubin Decl. Ex. K at 13, 25.) At his deposition, Mr. Jerome testified that he had at one time been a signatory to a collective bargaining agreement with Local 28 (the "CBA" or "Agreement"), on behalf of AUL. (Dubin Decl. Ex. K at 13-15.) He also testified that to his knowledge the CBA continued to be in effect, including through the end of the active operations of AUL. (See id. at 42-43; see also id. 13-16, 25; Dubin Decl. Ex. J (dated October 4, 2010).) Defendants also admitted the following in their answer to the complaint:
• "Heretofore, corporate defendant entered into contracts which, inter alia, provided for contributions by corporate defendant to the [Benefit Funds] for certain hours worked by participants employed by said corporate defendant." (Dubin Decl. Ex. N ¶ 6.)(Dubin Decl. Ex. O ¶¶ 6, 9-10.) Moreover, documentary evidence indicates that AUL was a member in good standing of Local 28 and the Sheet Metal & Air Conditioning Contractors' Association, another party to the CBA (see Dubin Decl. Exs. F-G), as late as 2010 and 2009, respectively. (Reply Decl. of Jeffrey S. Dubin Exs. 1, 2, 6.) Over the years, and on behalf of AUL, Mr. Jerome made a number of payments to the Benefit Funds. (See, e.g., Dubin Decl. Ex. K at 32-36 (discussing certain payments made from 2006 to 2008).) At his deposition, Mr. Jerome recalled making contributions to all five of the Benefit Funds. (See id. at 37-39.) The last payment reflected in the record was made on December 22, 2009. (See Dubin Decl. Ex. I.)
• "Pursuant to said contracts, corporate defendant employed persons who were participants in the Benefit Funds within the meaning of Section 3(7) of ERISA, 29 U.S.C. § 1002(7), while said contracts were in full force and effect." (Id. ¶ 9 (emphasis added).)
• "Pursuant to said contracts, corporate defendant is required to make contributions to plaintiffs for the period October 1, 2007 through December 31, 2009." (Id. ¶ 10 (emphasis added).)
Defendants have not objected to the admissibility of these documents (see Defs.' Reply Mem. at 3-4), and so the Court may properly consider them on summary judgment, regardless of whether they might otherwise be inadmissible. See, e.g., Capobianco v. City, 422 F.3d 47, 55 (2d Cir. 2005); 10 Charles Alan Wright, et al., Federal Practice & Procedure § 2722 (Westlaw 2011) ("As is true of other material introduced on summary judgment, uncertified or otherwise inadmissible documents may be considered by the court if not challenged. The objection must be timely or it will be deemed to have been waived."). --------
The CBA incorporates by reference the provisions of the Agreements and Declarations of Trust of each the Benefit Funds and binds signatory employers to them. (See Dubin Decl. Exs. F at 41-42, G at 41-42.) It further provides that "Employer contributions are considered assets of the respective Funds and title to all monies paid into and/or due and owing said Funds shall be vested in and remain exclusively in the Trustees of the respective funds. The Employer shall have no right, title or interest in or to any sum paid by or due from the Employer." (See Dubin Decl. Exs. F at 42, G at 42; accord Defs.' Mem. Opp. and Cross at 11.)
Defendant Jerome's deposition testimony leaves no doubt that he understood that AUL was a signatory to the CBA and that AUL was obligated, and had failed, to make payments due to the Benefit Funds in the amount of approximately $500,000. (Dubin Decl. Ex. K. at 13, 42-45.) Mr. Jerome candidly testified, "I mean, we do owe the money." (Id. at 43.) In addition, Defendants have stated in response to a document request that they "do not challenge plaintiffs' calculation that based upon the AUL payroll and the contributions made, contributions in the amount of $526,033 may be claimed by the various Funds based upon work performed by AUL under the Union agreement." (Dubin Decl. Ex. L Response to Request 3; see also id. Ex. M.)
Mr. Jerome has also candidly conceded that he is and was the sole officer, director and shareholder of AUL. (Dubin Decl. Exs. H Answer to Interrogatory 1, K at 10-11.) He has admitted that he possessed sole custody of the important books and records of AUL during the relevant period, including corporate, payroll and accounting records. (Dubin Decl. Ex. H Answer to Interrogatory 2; see also id. Ex. K at 11-12.) He determined which bills to pay, which checks to cut, sign and send and when. (Dubin Decl. Ex. H Answer to Interrogatory 5; see also id. Ex. K at 16-17.) From time to time, as a matter of convenience, Mr. Jerome's wife, Grace, would sign checks at his direction. (Dubin Decl. Ex. K at 20-22.)
In opposition to Plaintiffs' motion for summary judgment and in support of his own motion, defendant Jerome has submitted a declaration containing many statements that are flatly inconsistent both with his earlier deposition testimony and the documentary evidence. Those statements are made without citation to the record. They are self-serving and conclusory and are insufficient by themselves to raise triable issues of fact in the face of overwhelming contrary evidence.
STANDARD OF REVIEW
Summary judgment is proper only "if the evidence, viewed in the light most favorable to the party against whom it is entered, demonstrates that there are no genuine issues of material fact and that the judgment [is] warranted as a matter of law." Barkley v. Perm Yan Central School Dist., No. 09-3975-cv, 2011 WL 3890442, at *1 (2d Cir. Sep. 6, 2011) (internal quotation marks omitted). "Although the burden is upon the moving party to demonstrate that no genuine issue respecting any material fact exists, the non-moving party nonetheless must come forward with specific facts showing that there is a genuine issue of material fact for trial." Id. (internal citation and quotation marks omitted). It is well-settled that conclusory and self-serving allegations set forth without evidentiary support are insufficient to create a genuine issue of fact. See, e.g., id. at *1, 4; Clayborne v. OCE Bus. Servs., 381 Fed. Appx. 32, 34 (2d Cir. 2010); Savitsky v. Mazzella, 201 Fed. Appx. 71, 73 (2d Cir. 2006). Similarly, "a party may not create an issue of fact by submitting an affidavit in opposition to a summary judgment motion that, by omission or addition, contradicts the affiant's previous deposition testimony." Hayes v. New York City Dep't of Corrs., 84 F.3d 614, 619 (2d Cir. 2010); accord Clayborne, 381 Fed Appx. at 73.
DISCUSSION
Both Plaintiffs and Defendants have moved for summary judgment. Defendants' motion follows the old adage that the best defense may be to attempt offense. It does not work here. This is worse than a lopsided fight-it is no fight at all. Defense counsel has, however, offered a number of arguments to avoid liability and, indeed, support a judgment in their clients' favor: That Defendants were not, in fact, operating under the CBA after 2000 or 2001 (despite records of payments of union membership dues and contributions to the Benefit Funds, and union documents indicating that AUL was a member in good standing as of 2010) (Defs.' Mem. Opp. and Cross at 6-10; Defs.' Reply at 2); that defendant Jerome did not understand AUL to be operating under the CBA (despite his deposition testimony) (Defs.' Mem. Opp. and Cross at 8-9; Defs.' Reply at 4-6); and that defendant Jerome was not an ERISA fiduciary (despite his admissions that he is the sole officer, director and shareholder of AUL, has sole custody of its books and records and controls all outgoing payments) (Defs.' Mem. Opp. and Cross 12-18; Defs.' Reply at 9). Those arguments run so contrary to the actual factual record that they raise serious questions about whether defense counsel has crossed the line between zealous advocacy and sanctionable conduct under Federal Rule of Civil Procedure 11. This Court will, for the moment, give defense counsel the benefit of the doubt but notes its concern in light of the number of arguments and statements made in defendant Jerome's declaration on these motions that are flatly contradicted by the factual record.
Mr. Jerome's admissions during his deposition and Defendants' admissions in the answer, combined with the remainder of the documentary evidence, leave no room for doubt that AUL is liable for the First through Fifth Claims for Relief. The argument that AUL was not bound by the CBA during the period in question, from October 1, 2007 through December 31, 2009, is specious as best. As set forth in the Statement of Facts, Mr. Jerome testified at his deposition that to his knowledge AUL continued to be a party to the CBA and made contributions under that Agreement during the relevant period. (Dubin Decl. Ex. K 32-36, 42-43.) The documentary record supports those statements. The Eleventh Hour attempt by defense counsel to argue that the unsigned CBA (or Defendants' inability to locate the signed CBA) somehow proves that Defendants were not parties to the Agreement after 2001 is insufficient to raise a triable issue of fact when stacked against the other available evidence. The record of Mr. Jerome's actions and statements demonstrates his understanding that AUL was a party to the CBA during the period in question—he made payments in the many thousands of dollars to the Benefit Funds and conceded liability in the amount of $526,033 for the payments he did not make. There is, thus, no triable issue of fact as to AUL's liability for the first five Claims for Relief.
The Seventh Claim for Relief alleges that Defendants have breached their fiduciary duties owed to the Benefit Funds. Section 3(21) of ERISA states that "a person is a fiduciary with respect to [an employee benefit plan] 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." 29 U.S.C. § 1002(21)(A) (emphasis added). Because ERISA's definition of "person" includes a "corporation," AUL may also be a fiduciary within the meaning of ERISA. 29 U.S.C. § 1002(9); see also Greenblatt v. Prescription Plan Services Corp., 783 F. Supp. 814, 820 n.4 (S.D.N.Y. 1992) (concluding that a corporation "qualifies as a 'person' who may be 'a fiduciary with respect to a plan,' for purposes of ERISA Section 409, 29 U.S.C. § 1109"). As the Second Circuit has recognized, "Congress intended ERISA's definition of fiduciary 'to be broadly construed.'" Lopresti, et al. v. Terwilliger, 126 F.3d 34, 40 (2d Cir. 2007) (quoting Blatt v. Marshal & Lassman, 812 F.2d 810, 812 (2d Cir. 1987)).
Whether Defendants are fiduciaries of the Benefit Funds requires a two-part inquiry: (1) Whether unpaid contributions are assets of the Benefit Funds; and (2) whether Defendants exercised discretionary authority or control over those assets. (See, e.g., Defs.' Mem. Opp. and Cross at 5-6.) The answer to both questions is an unambiguous "yes." First, as Defendants concede, "when an employer's contribution becomes an asset of an ERISA fund must be determined by reference to the rights and obligations created by the underlying wage agreement." (Defs.' Mem. Opp. and Cross at 6; accord NYSA-ILA Med. & Clinical Servs. Fund v. Catucci, et al., 60 F. Supp. 2d 194, 200-01 (S.D.N.Y. 1999) ("Courts consistently hold that a company's unpaid debt to an ERISA fund is an 'asset' of that fund when the applicable agreement declares such debts to be fund assets."); see also Trustees of the Plumbers Local Union No. 1, et al. v. Philip Gen. Constr., et al., No. 05 CV 1665(NG)(RLM), 2007 WL 3124612, at *5 (E.D.N.Y. Oct. 23, 2007).) Elsewhere in Defendants' papers, they rely on In re Halpin, 566 F.3d 286, 290 (2d Cir. 2009) for the proposition that the Department of Labor interprets employer contributions to become fund assets only after they are paid. (See Defs.' Mem. Opp. and Cross at 5-6.) The Second Circuit in Halpin is clear, however, that its holding and the Department of Labor's general interpretation only apply in the absence of a specific contractual provision to the contrary, 566 F.3d at 290-91. NYSA-ILA Medical & Clinical Services Fund and Trustees of the Plumbers Local Union No. 1 are thus consistent with Halpin. Here, the applicable contract, the CBA, states clearly that all monies "due and owing" the Benefit Funds are considered assets of the Funds, with title "vested in and remain[ing] exclusively in the Trustees of the respective funds." (Dubin Decl. Ex. G at 42.) The law is well settled that that statement controls the first inquiry.
With regard to the second inquiry, the facts that defendant Jerome conceded at his deposition—that during the relevant period he was the sole officer, director and shareholder of AUL, maintained AUL's business records and made all of the payment decisions on behalf of AUL, including regarding payment to the Benefit Funds-are more than sufficient to demonstrate that he exercised discretionary authority respecting management or disposition of the Fund assets. See, e.g., Lopresti, 126 F.3d at 40; NYSA-ILA Medical & Clinical Servs. Fund, 60 F. Supp. 2d at 201-02. Likewise, as the employer itself, there is no question that AUL had control of the money it owed the Benefit Funds. Defendants were thus ERISA fiduciaries and, in turn, had an obligation to hold the assets of the Benefit Funds for the exclusive benefit of the participants and beneficiaries of the Funds. See 29 U.S.C. §§ 1103(c)(1), 1104(a)(1), 1106(b)(1). They did not do so. By paying creditors and other corporate expenses prior to making due and owing contributions to Plaintiffs (see Dubin Decl. Exs. H Answer to Interrogatory 5, K at 16-18; Jerome Decl. at ¶ 52), Defendants breached their fiduciary duties. See Lopresti, 126 F.3d at 40, 43; NYSA-ILA Medical & Clinical Servs. Fund, 60 F. Supp. 2d at 203. Accordingly, they are "personally liable" to Plaintiffs to make good the losses to the Benefit Funds resulting from their breach. 29 U.S.C. § 1109(a).
Last, the Sixth Claim for Relief is for conversion against both defendants. While there is ample evidence that Defendants "exercised unauthorized dominion" over property rightfully belonging to the Benefit Funds, the Court sua sponte dismisses this claim for a reason unrelated to its merits: ERISA preempts state law causes of action like this one. Lopresti, 126 F.3d at 41 ("Insofar as the [plaintiff] is seeking to recover losses to the Funds based upon a common law theory of conversion, undoubtedly, ERISA preempts such a claim. [It] is nothing more than an alternative theory of recovery for conduct actionable under ERISA." (internal citation and punctuation omitted)); see also 29 U.S.C. § 1144(a)(preempting "any and all State laws insofar as they may now or hereafter relate to any employee benefit fund described in Section 1003(a) of [ERISA]"). Dismissal of this Claim does not affect the Court's entry of summary judgment for Plaintiffs, however. They are already entitled to recover from Defendants the $526,033 Mr. Jerome conceded is owed the Benefit Funds, by virtue of the Court granting summary judgment on the other Claims for Relief.
CONCLUSION
For the reasons set forth above, Plaintiffs' motion for summary judgment is GRANTED, and Defendants' cross-motion for summary judgment is DENIED. The Court finds that the amounts submitted in the Declaration of Jeffrey S, Dubin in Paragraph 9 are reasonable, correct and consistent with the applicable law, which permits recovery of the unpaid contributions, interest, liquidated damages, reasonable attorneys' fees and costs and such other legal or equitable relief as the Court deems appropriate. See 29 U.S.C. 1132(g)(2). Accordingly, the Clerk of Court is directed to enter a final judgment for Plaintiffs in the amount of $786,623.02. Dated: New York, New York
January 5, 2012
/s/_________
KATHERINE B. FORREST
United States District Judge