Summary
In Dorn Sprinkler, the Court found a company's president and manager to be personally liable for due but unpaid employer fringe benefit contributions.
Summary of this case from Iron Workers Dist. Council of S. Ohio & Vicinity Benefit Tr. v. J & H Reinforcing & Structural Erectors, Inc.Opinion
CASE NO. 1:07cv650.
May 4, 2010
ORDER
This matter is before the Court pursuant to cross motions for summary judgment. Pending are Plaintiffs' motion for summary judgment (Doc. 54), Defendant Dorn Fire Protection, LLC's motion for summary judgment as to its alter ego status (Doc. 53), and Defendants' motion for summary judgment as to the claims brought by the individual Plaintiffs (Doc. 55). All motions are fully briefed and ripe for review.
I. Background Facts
Plaintiffs Road Sprinkler Fitters Local Union No. 669, U.A. AFL-CIO ("Union"), James Souder, David Money, Jeffer Turley, Wayne Mills, George Wiebell and Leeanna Honeycutt filed suit against Dorn Sprinkler Company ("Dorn Sprinkler"), Dorn Fire Protection, LLC ("Dorn Fire"), Christopher Dorn and David Dorn alleging breach of an obligation of arbitration, breach of fiduciary duties, failure to monitor other fiduciaries and conducting prohibited transactions under ERISA. (See Doc. 44). The individual Plaintiffs, save Leeanna Honeycutt, are former employees of Dorn Sprinkler. Leeanna Honeycutt's spouse is a former employee of Dorn Sprinkler.
David Dorn was the CEO of Dorn Sprinkler and had been since its inception in 1977. (Doc. 54-5, D. Dorn Depo., pp 10, 40). David Dorn was in charge of the day-to-day management and operations of the entire company. (Id., at pp 41, 47-49). Dorn Sprinkler was in the business of designing, installing, maintaining, inspecting and repairing automatic fire protection systems. (Id. at p 15). Christopher Dorn is David Dorn's son and was employed by Dorn Sprinkler from at least 1991 through September 2006 when he resigned to start his own company, Dorn Fire. (Doc. 54-6, C. Dorn Depo., pp 8, 15, 26). While at Dorn Sprinkler, Christopher Dorn was the lead salesman. He also had the title Vice President of Sales. (Doc. 54-4, D. Dorn Depo, pp 12-13). Christopher Dorn also had authority to sign checks but did not have any decision making authority. (Id. at p 41). Amy O'Shaughnessy, David Dorn's daughter, was also a Vice President and also had check signing authority. Amy O'Shaughnessy was involved in the management of the front office and keeping the books. (Id. at pp 40-42). Dorn Sprinkler had a two signature check writing policy. Only David Dorn, Christopher Dorn and Amy O'Shaughnessy had authority to sign checks. However, any payments made had to be approved by David Dorn. (Id.). If he was absent from Dorn Sprinkler for an extended period of time, then Amy O'Shaughnessy would have the authority to approve payments. (Id.).
Dorn Sprinkler was a signatory to an Assent and Interim Agreement with the Union. (Doc. 54-3, p 2). This required, among other things, for Dorn Sprinkler to make employer contributions to various benefit funds. Dorn Sprinkler was required to make contributions to the National Automatic Sprinkler Industry Welfare Fund ("Welfare Fund"), National Automatic Sprinkler Industry Pension Fund ("Pension Fund"), NASI-Local 669 Industry Education Fund ("Education Fund"), and Supplemental Pension Fund ("Supplemental Fund) (collectively, the "Benefit Funds"). (Doc. 54-4, D. Dorn Depo., p 20-21). Dorn Sprinkler fell behind in making the required payments. (Id.) It is undisputed that Dorn Sprinkler became three months behind in its benefits payments. (Id., p 48-49). The employees of Dorn Sprinkler stopped all work on January 17, 2007 and effectively forced Dorn Sprinkler out of business because there were no laborers to do the work. (Doc. 54-5, D. Dorn Depo., p. 17). Although Dorn Sprinkler made payments to the Benefit Funds through January, 2007, no payments were made for the covered period of October 1, 2006 through January 17, 2007 due to Dorn Sprinkler's payments being in arrearage.
The Amended Complaint alleges that the contributions were actually deductions made from employee paychecks (see Doc. 44, ¶¶ 36, 45); however, it is clear from the evidence before the Court that the money to be paid to the benefit funds was to come from employer contributions and that no money other than taxes and union dues were withheld from employee's payroll. (See Doc. 55-4, ¶¶ 12-19, Doc. 55-7 and Doc. 55-8). Plaintiffs seem to concede this point in the briefs.
The Union filed three grievances against Dorn Sprinkler and requested arbitration. Although Dorn Sprinkler initially agreed to arbitrate, it later refused on the ground that it was going out of business. On March 20, 2007 Dorn Sprinkler filed papers with the Ohio Secretary of State to dissolve its business. Plaintiffs then submitted its request to arbitrate the grievances to Dorn Fire under the theory that Dorn Fire is the alter ego of Dorn Sprinkler. Dorn Fire refused stating that it was not the alter ego of Dorn Sprinkler. Plaintiffs brought this suit to recover, among other things, all losses resulting from the Defendants' breaches and prohibited transactions and to force Dorn Fire to arbitration.
II. Standard of Review
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A court must view the evidence and draw all reasonable inferences in favor of the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, (1986). The moving party has the burden of showing an absence of evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the moving party has met its burden of production, the non-moving party cannot rest on his pleadings, but must present significant probative evidence in support of his complaint to defeat the motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). The mere existence of a scintilla of evidence to support the non-moving party's position will be insufficient; the evidence must be sufficient for a jury to reasonably find in favor of the non-moving party. Id. at 252.
"In ruling on a motion for summary judgment (in other words, in determining whether there is a genuine issue of material fact), "[a] district court is not . . . obligated to wade through and search the entire record for some specific facts that might support the nonmoving party's claim." InterRoyal Corp. v. Sponseller, 889 F.2d 108, 111 (6th Cir. 1989), cert. denied, 494 U.S. 1091 (1990); see also L.S. Heath Son, Inc. v. AT T Information Sys., Inc., 9 F.3d 561 (7th Cir. 1993); Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915 n. 7 (5th Cir.), cert. denied, 506 U.S. 832, 121 L. Ed. 2d 59, 113 S. Ct. 98 (1992) ("Rule 56 does not impose upon the district court a duty to sift through the record in search of evidence to support a party's opposition to summary judgment . . ."). Thus, a court is entitled to rely, in determining whether a genuine issue of material fact exists on a particular issue, only upon those portions of the verified pleadings, depositions, answers to interrogatories and admissions on file, together with any affidavits submitted, specifically called to its attention by the parties." Beatty v. UPS, 267 F. Supp. 2d 823, 829 (D. Ohio 2003.
III. Legal Analysis
A. Dorn Fire's Obligation to Arbitrate
The underlying determination that needs to be made to determine if Dorn Fire has an obligation to arbitrate is whether or not Dorn Fire is the alter ego of Dorn Sprinkler. For the reasons set forth below, this Court finds that it is not.
"The alter ego doctrine was developed to prevent employers from evading obligations under the [National Labor Relations] Act by merely changing or altering their corporate form." NLRB v. Allcoast Transfer, Inc., 780 F.2d 576, 579 (6th Cir. 1986). "To determine whether application of the doctrine is appropriate, the circumstances surrounding a change in corporate form must be examined to determine whether the change resulted in a `bona fide discontinuance and a true change of ownership' or was merely a `disguised continuance of the old employer.' Id. quoting Southport Petroleum Co. v. NLRB, 315 U.S. 100, 106 (1942). In making this determination, a court should consider the following relevant factors: substantial identity of management, business purpose, operation, equipment, customers, supervision and ownership, and intent. The Court should examine all of the circumstances and weigh all the relevant factors together. Id. at 581-582.
1. Substantial Identity of Management
David Dorn was the President and manager of the day to day operations of Dorn Sprinkler. Christopher Dorn has that role for Dorn Fire. Although Christopher Dorn had the title of Vice President at Dorn Sprinkler, he had no financial decision making authority. (Doc. 54-5, D. Dorn Depo., pp 40-42). Plaintiffs argue that the father-son relationship alone is sufficient for this factor to weigh in their favor. However, the Court can not look only at the family relationship but must look to the nature of the management of the businesses. Pipe Fitters Union Local No. 392 v. Aggressive Piping, Corp., 841 F. Supp. 224, 227 (S.D. Ohio 1991). Plaintiffs allege that Christopher Dorn is now the owner and President, that Amy O'Shaughnessy is now Dorn Fire's bookkeeper and that David Dorn now does consulting work for Dorn Fire. Although the evidence does support this, it is not enough to equate to a substantial identity of management. Christopher Dorn is the owner and President of Dorn Fire. However, there is no evidence to support that David Dorn or Amy O'Shaughnessy is a manger of Dorn Fire. David Dorn has absolutely no ownership interest or managerial role at Dorn Fire. In fact, the evidence is clear that David Dorn has started his own consulting company, D D Design wherein Dorn Fire, among several others, is a client. (See Doc. 54-4, D. Dorn Depo., p 30-31). Amy O'Shaughnessy has also started her own fire inspection business. She does operate her business out of space located at Dorn Fire but she does so in exchange for helping Dorn Fire with basic bookkeeping and bill paying. This does not equate to a managerial role. (See Doc. 61-5, ¶ 28-30). In addition, although Dorn Fire rents its office space from a company called Malas Dorn, where David Dorn is a partner, it pays a monthly fee to do so. (See Doc. 54-6, C. Dorn Depo., p 84). Thus, the Court finds that the management of Dorn Fire and Dorn Sprinkler is not substantially the same.
2. Business Purpose
The parties agree that the business purpose of Dorn Sprinkler and Dorn Fire are the same. This factor favors a finding of an alter ego.
3. Operation
Dorn Fire began operations in October, 2006. At that time Dorn Sprinkler was still operating as well. In fact, Dorn Fire was a competitor of Dorn Sprinkler. It was not until the employees of Dorn Sprinkler had a work stoppage that Dorn Sprinkler ceased operations. At the time of Dorn Fire's inception it rented its own office space, had employees of its own, customers of its own and jobs of its own. Christopher Dorn had no involvement in Dorn Sprinkler after he resigned in September, 2006.
Plaintiffs also argue that Dorn Fire has substantially identical employees of Dorn Sprinkler. Although no complete employee list of either company has been provided to the Court, it appears that Dorn Fire has hired five former Dorn Sprinkler employees. Michael Sterwerf was hired at Dorn Fire on February 2, 2007. It appears that Mr. Sterwerf was working at Dorn Sprinkler until the work stoppage. Not long after Christopher Dorn started Dorn Fire he offered Bart Motz a job. Mr. Motz was working at Dorn Sprinkler at the time. David Mitchell called Christopher Dorn and asked for a job in February, 2007. There has been no evidence presented that Mr. Mitchell was working for Dorn Sprinkler at that time, although he had previously worked for Dorn Sprinkler. Timothy Bihlman worked for Dorn Sprinkler in the 1970's and early 1980's. He has not worked for Dorn Sprinkler since and was hired by Dorn Fire on October 2, 2006. Jack Carnes was hired by Dorn Fire on January 15, 2007. There is no evidence that he worked for Dorn Sprinkler at the time. Dorn Fire also employs nine additional employees who have never worked for Dorn Sprinkler. (See Doc. 53-3; Doc. 54-5, D. Dorn Depo., p 32).
Since the evidence only shows that Mr. Sterwerf and Bart Motz worked for Dorn Sprinker at or around the time of Dorn Sprinkler's cessation of business, this factor favors a finding of no alter ego as there is no "continuity of the work force."
4. Equipment
The parties agree that Dorn Fire uses the same types of equipment as Dorn Sprinkler. Dorn Fire argues that all contractors in the sprinkler industry use the same types of equipment. Dorn Fire does use some of Dorn Sprinkler's actual tools and vehicles. However, Dorn Fire has produced evidence to show that it purchased those items in arms length transactions from Dorn Sprinkler after it went out of business. (See Doc. 54-5, D. Dorn Depo., p 24-25; Doc. 54-6, C. Dorn Depo., p 38-39). Other contractors also purchased tools from Dorn Sprinkler. (Doc. 54-6, C. Dorn Depo., p 38). Thus, this factor weighs against a finding of an alter ego.
5. Customers
Although Dorn Fire admits that it did share approximately nine of the same customers as Dorn Sprinkler, it argues that those customers only represent a small fraction of Dorn Fire's 250 customers. Dorn Fire also finished two projects that Dorn Sprinkler was working on when the work stoppage began and declined to finish another one when asked to do so. Many of the other pending jobs of Dorn Sprinkler were finished by other contractors. (Doc. 54-5, D. Dorn Depo. Pp. 62-64). Thus, this factor also weights against a finding of an alter ego.
6. Supervision and Ownership
This factor is similar to the "substantially identical of membership" factor discussed above and will not be further analyzed here.
7. Intent
There has not been any evidence presented that would lead this Court to the conclusion that Dorn Fire was started to avoid the Collective Bargaining Agreement signed by Dorn Sprinkler, especially given the fact that Dorn Fire was in operation for several months before Dorn Sprinkler closed its doors. This factor also weighs against a finding of an alter ego.
Thus, after weighing the above seven factors, the Court finds that Dorn Fire is not the alter ego of Dorn Sprinkler. Dorn Fire has no obligation to arbitrate. Plaintiffs' motion for summary judgment (Doc. 54) on this issue is DENIED and Defendant Dorn Fire's motion for summary judgment (Doc. 53) is GRANTED.
B. Breach of Fiduciary Duties
1. Failure to Remit Contributions
Plaintiffs allege that David Dorn and Christopher Dorn breached their fiduciary duties to the plan and its participants. As referenced above, Christopher Dorn did not have authority to make any financial decisions at Dorn Sprinkler. Although he did have authority to be a signatory on a two party signatory required checking account, he did not have authority to write any checks without the prior approval of David Dorn, or in rare circumstances, Amy O'Shaughnessy. The testimony is clear that all financial decisions, especially those relating to the Union and the required contributions, were made exclusively by David Dorn. (Doc. 54-5, D. Dorn Depo., pp 41, 47-49). Thus, any breach of fiduciary duty claims must fail as to Christopher Dorn.
Plaintiffs allege a failure to remit deducted employee contributions and a failure to disclose non-payment of employee contributions. However, as previously addressed by this Court in footnote 1 above, the evidence shows that no employee contributions were deducted. The real issue is whether David Dorn's failure to remit employer contributions as required by the CBA and the failure to disclose that non-payment to the employees is a breach of a fiduciary duty.
The Union has already received a default judgment against Dorn Sprinkler in a Maryland court for the funds that are due and owing to the Benefit Funds. (See Doc. 54-5, p 82). This judgment remains outstanding. In this case, the individual Plaintiffs argue that they are seeking, among other relief, to recover benefits due them, not the specific funds which were awarded in the Maryland case as well as liability against David Dorn individually.
"Under ERISA, a `fiduciary' must `discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries[,]' and only for the purpose of providing benefits to beneficiaries and covering administrative costs." Briscoe v. Preferred Health Plan, Inc., 578 F.3d 481, 485 (6th Cir. 2009) citing 29 U.S.C. § 1104(a)(1)(A). "Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable" for damages caused by the breach. Id. citing 29 U.S.C. § 1109(a).
When deciding whether a person is a fiduciary, the Court must look to whether or not the person "exercises any authority or control respecting management or disposition of [plan] assets." U.S.C. § 1002(21)(A)(i). To analyze this the Court must first determine if employer contributions due, but not yet paid, are considered plan assets. This Court has held that "traditionally, the proper rule, developed by case law, is that unpaid employer contributions are not assets of a fund unless the agreement between the fund and the employer specifically and clearly declares otherwise." Sheet Metal workers Local 98 Pension Fund v. AirTab, Inc., 2008 U.S. Dist. LEXIS 80492 (S.D. Ohio, Oct 10, 2008). Here, the Welfare Trust Agreement and the Pension Trust Agreement (collectively, the "Trust Agreements") both provide that employer contributions are considered plan assets (See Doc. 56-1, p 5 and Doc. 56-2, pp 4-5). The Trust Agreements provide that assets of the fund are defined to be "the sums of money that have been or will be paid or which are due and owing to the Fund by the Employers as contributions required by Collective Bargaining Agreements." David Dorn agreed to be bound by the Trust Agreements when he signed the Assent and Interim Agreement. (See Doc. 55-6, ¶ 4). Therefore, the language in the Trust Agreements specifically and clearly declares that employer contributions due and owing are considered trust fund assets and, therefore, by incorporation by the Assent and Interim Agreement and the CBA are considered plan assets. Thus, the employer contributions are considered to be plan assets as to the Welfare Fund and the Pension Fund. However, no such language seems to exist as to the assets of the Education Fund or Supplemental Fund.
Defendants seem to concede this point. (See Doc. 59, p 5-6).
As to exercising any authority or control, David Dorn retained plan assets by not making the contributions as required by the CBA. He also admitted to being responsible for all financial decisions and making the decision to pay other creditors instead of making the required contributions at issue here. (See Doc. 54-5, D. Dorn Depo., pp 40-41, 47-49, 57). Here the evidence is clear that David Dorn exercised control over the payment of contributions to the Welfare Fund and Pension Fund, and as such, acted as a fiduciary as to only the payments due under those funds. See Briscoe v. Preferred Health Plan, Inc., 578 F.3d 481, 485-486 (6th Cir. 2009) (holding that plan administrator was a fiduciary only to the extent that it took specific actions with respect to assets under its control).
Based upon the testimony of David Dorn, it is undisputed that he breached this fiduciary duty when he failed to remit the required payments to the Welfare Fund and Pension Fund and instead use those funds to pay other creditors of Dorn Sprinkler. See 29 U.S.C. § 1104(a)(1)(A)(i) and § 1104(a)(1)(D). However, since the contributions due and owing to the Education Fund and Supplemental Fund are not plan assets, David Dorn did not breach a fiduciary duty as to those funds.
Therefore, Defendants' motion for summary judgment (Doc. 55) as to this claim is GRANTED, in part, and DENIED, in part. Plaintiff's motion for summary judgment (Doc. 54) as to this claim is GRANTED, in part, and DENIED, in part.
2. Failure to Inform
As to the failure to inform claim, Defendants argue that Plaintiffs have failed to adequately plead this claim arguing that they can not prove, nor have they alleged, a proper claim for material misrepresentation. Plaintiffs are alleging that David Dorn violated 29 U.S.C. § 1104(a)(1)(B) which provides that a fiduciary breaches its duties by materially misleading plan participants. David Dorn did this, Plaintiffs allege, by failing to inform the individual Plaintiffs that the required contributions were not being made and, therefore, the individual Plaintiffs either may or did not have health insurance coverage. Based upon this alleged failure to inform, the individual Plaintiffs allegedly sought medical care and incurred damages when they otherwise might not have.
The standard regarding a material misrepresentation is that "a plaintiff must show: (1) that the defendant was acting in a fiduciary capacity when it made the challenged representations; (2) that these constituted material misrepresentations; and (3) that the plaintiff relied on those misrepresentations to [his or her] detriment." James v. Pirelli Armstrong Tire Corp., 305 F.3d 439, 449 (6th Cir. 2002). Here, the Court has already determined that David Dorn was acting as a fiduciary. Although the Plaintiffs do not necessarily set forth any evidence that this failure to inform was material, this Court finds that the failure to inform plan participants that they do not have health insurance is a material misrepresentation. See Krohn v. Huron Mem. Hosp., 173 F.3d 542, 548 (6th Cir. 1999) ("the duty to inform is a constant thread in the relationship between beneficiary and [fiduciary]; it entails not only a negative duty not to misinform, but also an affirmative duty to inform when the [fiduciary] knows that silence might be harmful.") As to the evidence to support a finding of reliance on this misrepresentation, the only evidence the Court could find was a letter from Plaintiffs' counsel outlining the out of pocket expenses of three individual Plaintiffs, namely Souder in the amount of $3,832.80, Money in the amount of $553.02 and Honeycutt in the amount of $143.00, and the Welfare Trust Agreement which states that its purpose is to provide health benefits. (See Doc. 60-3, p 1; Doc. 56-1, p 5). However, David Dorn stated that although he did not directly inform the employees of his failure to make the required contributions, when asked by employees as to why their medical claims were being rejected, David Dorn reimbursed them for their out of pocket expenses and informed them that Dorn Sprinkler was behind in its payments. (Doc. 54-5, D. Dorn Depo., p 50-51).
The Court questions whether or not Plaintiffs are seeking recovery individually or on behalf of the Plan as individual recovery may not be available under ERISA § 502(a)(2), 29 USC 1132(a)(2). However, since neither party raised this issue, the Court will not address it here.
Although the evidence to support Plaintiffs' allegations is weak, the Court finds that there is sufficient evidence to raise a question of fact. Therefore, the cross motions for summary judgment as to this issue are DENIED.
C. Failure to Monitor Other Fiduciaries
Based on the finding above that Dorn Fire is not an alter ego of Dorn Sprinkler and that Christopher Dorn is not a fiduciary, this claim must fail. Defendants' motion for summary judgment (Doc. 55) on this issue is GRANTED. Plaintiff's motion for summary judgment on this issue is DENIED.
D. Prohibited Transactions under ERISA
29 USC § 1106(a) prohibits certain transactions between a plan and a "party in interest." One such prohibited transaction is the "transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan." Plaintiffs argue that David Dorn, as a party in interest to the Plan engaged in prohibited activities by misappropriating Plan assets for his own benefit. David Dorn did not specifically address the merits of this allegation other than to argue that he is not a fiduciary and therefore can not be a party in interest.
Since this Court has found David Dorn to be a fiduciary of the plan, he is also considered a "party in interest" to the Plan. See 29 USC § 1002(14). The question now before this Court is did David Dorn engage in prohibited transactions. David Dorn testified that he paid other creditors of Dorn Sprinkler instead of making the required contributions to the plan. (Doc. 54-5, D. Dorn Depo., p 47-49). Since Dorn Sprinkler, as an employer whose employees were covered by the Plan, is also a "party in interest" (see 29 USC § 1002(14)), there can be no question that plan assets were used for the benefit of a party in interest, whether it be Dorn Sprinkler or David Dorn, when David Dorn paid other creditors of Dorn Sprinkler.
Thus, Plaintiffs' motion for summary judgment as to this claim against David Dorn is GRANTED and Defendants' summary judgment as to Christopher Dorn on this issue is also GRANTED.
IV. Conclusion
For the foregoing reasons, Plaintiffs' motion for summary judgment (Doc. 54) is GRANTED, in part, and DENIED, in part. Defendant Dorn Fire's motion for summary judgment (Doc. 53) is GRANTED. Defendants' motion for summary judgment (Doc. 55) is GRANTED, in part, and DENIED, in part. Defendants Dorn Fire Protections, LLC and Christopher Dorn are hereby DISMISSED.
IT IS SO ORDERED.