Opinion
Civil Action 18-1112 Re ECF 46 48
04-22-2020
EMPLOYER TRUSTEES OF WESTERN PENNSYLVANIA TEAMSTERS AND EMPLOYERS WELFARE FUND, WILLIAM J. DILLNER, M. E. DOUTT, ROBERT JACKSON, RAYMOND MILLER, and ROBERT J. PERKINS, Plaintiffs, v. UNION TRUSTEES OF WESTERN PENNSYLVANIA TEAMSTERS AND EMPLOYERS WELFARE FUND, KEITH FRANK, CHARLES GASTON, JOSEPH A. MOLINERO, KEVIN SCHMITT, and SCOTT STANLEY, Defendants.
Honorable Joy Flowers Conti, United States District Judge
REPORT AND RECOMMENDATION
MAUREEN P. KELLY, UNITED STATES MAGISTRATE JUDGE
I. RECOMMENDATION
Presently before the Court is the Motion for Summary Judgment filed by Plaintiffs Employer Trustees of Western Pennsylvania Teamsters and Employers Welfare Fund, William J. Dillner, M.E. Doutt, Robert Jackson, Raymond Miller and Robert J. Perkins (collectively, the “Employer Trustees”), ECF No. 46, and the Motion for Partial Summary Judgment filed by Defendants Union Trustees of Western Pennsylvania Teamsters and Employers Welfare Fund, Keith Frank, Charles Gaston, Joseph A. Molinaro, Kevin Schmitt and Scott Stanley (collectively, the “Union Trustees”). For the reasons that follow, it is respectfully recommended that the Motion for Summary Judgment of the Employer Trustees be granted as to Counts I and II of the Amended Complaint and denied without prejudice as to the counterclaim of the Union Trustees. It also recommended that the Partial Motion for Summary Judgment of the Union Trustees be denied.
II. REPORT
A. FACTUAL BACKGROUND
1. The Parties
The Western Pennsylvania Teamsters and Employers Welfare Fund (the “Fund”) is a multi-employer benefit plan established under § 302(c)(5) of the Labor Management Relations Act (“LMRA”), 29 U.S.C. § 186(c)(5). The Fund was created and operates under the Agreement and Declaration of the Trust, which was originally established on June 12, 1950 and was amended and restated as of January 1, 2000 (the “Trust Agreement”). ECF No. 44 ¶ 4. The Trust Agreement provides for five (5) Employer Trustees and five (5) Union Trustees. Id. ¶¶ 5, 15.
At present, the five (5) Employer Trustees are M.E. Doutt, Robert Jackson, Douglass Longenette, Raymond Miller and Robert J. Perkins. Id. ¶ 5. The Employer Trustees are appointed by participating employers in accordance with the Trust Agreement. Id. ¶ 7. The five (5) Union Trustees are Keith Frank, Charles Gaston, Joseph Molinaro, Kevin Schmitt and Scott Stanley. Id. ¶ 8. The Union Trustees are appointed by the member unions in accordance with the Trust Agreement. Id. ¶ 9.
William J. Dillner, a named plaintiff, is a former Employer Trustee who resigned his position as of December 1, 2018. Id. ¶ 6.
Each of the Employer Trustees and each of the Union Trustees individually and collectively constitute a “fiduciary” within the meaning of Section 3(21) of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1002(21). Id. ¶ 10. The Fund is an “employee welfare benefit plan” within the meaning of Section 3(1) of ERISA, 29 U.S.C. § 1002(1). The Fund does not provide pension benefits. Id. ¶ 11.
From 2005 through November 2016, the Fund generated net income of $38,774,555. ECF No. 47 ¶ 1. It was projected at that time to have net positive revenue of $4,594,000 for 2016. Id. ¶ 2. The Fund had unallocated reserves in the amount of $43.6 million. Id. ¶ 3. The Fund provided benefits to approximately 4, 000 participant members resulting in coverage for approximately 12, 000 individuals, including dependents, and received contributions from approximately 150 employers. Id. ¶ 4. Only around 4% of those contributions came from unions as employers. Id. ¶ 5.
The Fund maintains it principal office in Bridgeville, Allegheny County, Pennsylvania. ECF No. 44 ¶ 12.
2. The December 3, 2014 Deadlock over Payment for Attendance at Meetings
At the Executive Session of the Trustees held on December 3, 2014, an Employer Trustee moved that, effective November 2014, the Fund compensate those Trustees who legally qualify for compensation in the amount of $600.00 per Trustee Sub-Committee Meeting and the amount of $600.00 per monthly Trustee Meeting, to be paid upon the Trustee's attendance at said meetings. This motion deadlocked. Id. ¶ 13. The Employer Trustees requested that the deadlocked December 3, 2014 motion be resolved in arbitration. Id. ¶ 14. The Union Trustees declined to proceed to arbitration on the deadlocked motion based on the assertion that two (2) Employer Trustees were invalidly appointed, because they were not contributing employers or employed by a contributing employer to the Fund. Id. ¶ 15.
A request was made to Charles Streiff (“Fund Counsel”) for his opinion on the Trust Agreement's provisions relating to the appointment of Employer Trustees. Id. ¶ 16. On April 1, 2015, Fund Counsel provided an Opinion Letter stating:
The provisions of the Trust Agreement, the applicable case law, past precedents, the approval by the Department of Labor, and the lack of formal objections by any Welfare Fund Trustee or contributing Employer to the Welfare Fund, make clear that the appointment procedures for an Employer Trustee provide for the appointment of “any” person and do not require an Employer Trustee to be a contributing Employer, or be employed by a contributing Employer, to the Welfare Fund.ECF No. 45-4.
An arbitrator was selected and a hearing date set. Id. ¶ 18. Before the arbitration hearing took place, the Union Trustees contended that the issue of payment for attendance at meetings was not arbitrable under the Trust Agreement and refused to go to arbitration. Id. ¶ 19. As a result, the Employer Trustees filed a federal lawsuit seeking to compel arbitration of the deadlocked motion. Id. ¶ 20. See Employer Trustees of W. Pa. Teamsters & Employers Welfare Fund, et al. v. Union Trustees of W. Pa. Teamster & Employers, et al., Case No. 2:13-cv-1417 (W.D. Pa.). The lawsuit was dismissed by the United States District Court for the Western District of Pennsylvania. ECF No. 45-5. However, the dismissal was reversed on appeal by the United States Court of Appeals for the Third Circuit, who ordered arbitration. ECF No. 45-6.
A hearing was conducted regarding this deadlock in Pittsburgh, Pennsylvania by Arbitrator Michael Zobrak on July 26, 2018, during which both the Employer Trustees and Union Trustees were represented by separate counsel. ECF No. 44 ¶ 22. Arbitrator Zobrak rendered an award on March 6, 2019 (the “Zobrak Award”). Id. ¶ 23. In the relevant part of the award, Arbitrator Zobrak found:
On December 3, 2014, the Employer Trustees moved to have all Trustees compensated at the rate of $600 for attendance at monthly trustee meeting and trustee subcommittee meetings. The motion was deadlocked. The Union Trustees took the position that the Trust Agreement does not authorize such payments. According to the Union Trustees position, payment can only be made as “reimbursement for expenses and payment of allowances properly and actually incurred in the performance of their duties with the Health and Welfare Fund.”
It is determined that the term “reimbursement” is a key to determination on the Employer Trustees motion. Reimbursement indicates that an expenditure was incurred and that the cost of the expenditure is subject to payment, in this case by the Trust. Compensation for attendance at meeting does not fall under the classification of “reimbursement.” There is no evidence that the simple act of presence at a meeting, in and of itself, is an expenditure.
The Union pointed out that the 1967 Trust Agreement did contain language for the payment of fees for attendance at meetings. That language no longer appears in the controlling Trust Agreement. This observation is critical to the determination of this matter. When a provision that clearly covers the matter at hand, such as the provision in the 1967 Trust Agreement, has been removed and no longer appears in the Trust Agreement, it must be concluded that the controlling Trust Agreement does not allow for payment for attendance at Trust meetings.ECF No. 45-7 at 13-14.
Accordingly, Arbitrator Zobrak denied the motion of the Employer Trustees relative to the deadlock on the $600 per meeting attendance fee. Id. at 15.
3. The April 8, 2015 Deadlock over Appointment of Employer Trustee
On April 8, 2015, the Union Trustees made a motion to amend the Trust Agreement to require Employer Trustees to be full-time employees of participating employers. The motion deadlocked. ECF No. 44 ¶ 24. The Union Trustees requested that the April 8, 2015 deadlocked motion advance to arbitration. The Employer Trustees declined the request of the Union Trustees on the basis that the deadlock was not arbitrable pursuant to the terms of the Trust Agreement. Id. ¶ 25.
The Union Trustees made a subsequent motion at the Trustees meeting on December 2, 2015, for which the minutes of that meeting states as follows: “Moved to clarify and confirm that the trust document requires that all Employer Trustees must be a full-time employee of a contributing employer to the Fund.” This subsequent motion also deadlocked. Id. ¶ 26.
The Union Trustees requested that this second motion advance to arbitration. Id. ¶ 27. The Employer Trustees declined to arbitrate this second motion on the basis that it was identical to the first motion on appointing Employer Trustees and requested the same relief, and therefore it was not arbitrable pursuant to the terms of the Trust Agreement. Id. ¶ 28.
The Union Trustees filed another federal lawsuit to compel arbitration of the second motion on the appointment of Employer Trustees. Id. ¶ 29; see also Union Trustees of W. Pa. Teamsters, Employers Welfare Fund, et al. v. Employer Trustees of W. Pa. Teamsters & Employers Welfare Fund, et al., Case No. 2:16-cv-84 (W.D. Pa.). The lawsuit was dismissed by the United States District Court for the Western District of Pennsylvania. ECF No. 44 ¶ 30; ECF No. 45-10. The dismissal was reversed on appeal by the United States Court of Appeals for the Third Circuit, who ordered arbitration. ECF No. 44 ¶ 30; ECF No. 45-6.
A hearing was conducted regarding this deadlock in Pittsburgh, Pennsylvania by Arbitrator Michael Zobrak on July 26, 2018, during which both the Employer and Union Trustees were represented by separate counsel. ECF No. 44 ¶ 31. Arbitrator Zobrak rendered the Zobrak Award on March 6, 2019. Id. ¶ 32. Arbitrator Zobrak ruled, in pertinent part, that:
The remaining issue deals with the Union Trustees attempt to specifically limit Employer Trustees to full-time employees of an employer participating in the Welfare Fund; and to be domiciled in the specific area covered by the applicable collective bargaining agreement. The Employer Trustees rejected this proposal as an intrusion on its right to select its own trustees. It argues that those not employed on a full-time basis can serve as Employer Trustees. In fact, two of the current Employer Trustees do not meet the qualifications proffered by the Union Trustees.
The Union Trustees rely on the provisions of section 1.7, 3.1 and 3.4 of the Trust Agreement to support its position that Employer Trustees must be full-time employees of the participating employer, domiciled in the specific area covered by the applicable collective bargaining agreement. The undersigned has reviewed these provisions of the Trust Agreement and cannot find justification to grant the Union Trustees motion.
While the Union Trustees position can be understood as attempt to make sure that the Employer Trustees have a close relationship with the Trust Agreement; lacking any provision within said Trust Agreement to define and limit who may serve as an Employer Trustee, it must be found that the undersigned lacks the authority to add such limitation. Section 1.9 of the Trust Agreement designates that an Employer Trustee is one who is designated by the Employer to act as a Trustee in accordance with Section 3.1. As such, the motion put forth by the Union Trustees will not be granted.ECF No. 45-7 at 14-15.
Accordingly, Arbitrator Zobrak denied the motion of the Union Trustees regard the Trustee eligibility deadlock. Id. at 15.
4. The December 2, 2015 Deadlock on Attorneys' Fees
At the Trustees meeting held on December 2, 2015, Union Trustee McClelland made the following motion:
Moved that any fees paid to attorneys pursuant to Section 3.15 of the trust document which allows for the Health and Welfare Fund to pay attorney's fees incidental to proceedings instituted to break a deadlock be limited to an amount not to exceed $250.00 per billable hour.ECF No. 44 ¶ 33.
Five (5) Union Trustees voted in favor of the motion, and five (5) Employer Trustees voted against it, creating a deadlock. Id. ¶ 34. In accordance with the deadlock procedure Article III, Section 3.15(b) of the Trust Agreement, in May 2016, the Trustees agreed to appoint Joseph P. Fagan, Sr. as Impartial Umpire. Id. ¶ 35.
5. The Fagan Arbitration
A hearing was conducted in Pittsburgh, Pennsylvania by Arbitrator Fagan on September 14, 2016, during which both the Employer and Union Trustees were represented by separate counsel. Id. ¶ 36. Arbitrator Fagan rendered an award on December 13, 2016 (the “Fagan Award”). Id. ¶ 37. In the award, Arbitrator Fagan ruled, in pertinent part, that:
Whether the fees charged by the Employer Trustees are, as the Union would indicate, “unreasonable, ” may be open to question and both parties have provided data which would indicate how you obtain the data and the services used result in greatly varying results as to “reasonable.”
There is a question of the reasonableness in the Employer taking more from the Welfare Fund than the Union is removing for a similar purpose.
On the other hand the Arbitrator cannot ignore the fact the parties (Union and Employer) agreed sixteen years ago on the Fund Agreement which currently exists and which the Arbitrator is bound to adhere to.
There is no suggestion that monies withdrawn from the Fund, by the Union trustees and Employer Trustees, for similar legal expenses, were ever equal in amount during this period. Yet the thrust of this complaint or grievance is, in effect, asking the Arbitrator to supply language to require that result.
This is not to suggest that such a result would not be equitable either by equal amounts being paid for such legal expenditure on equal amounts withdrawn from the Fund no matter what the respective legal payments were.
Saying that, the Arbitrator has no authority to add language to the January 1, 2000 Trust Agreement which provide the result the Union Trustees are requesting.ECF No. 45-11 at 5-6.
Based on this finding, the grievance as requested in the Union Trustees' motion of December 2, 2015 was denied by Arbitrator Fagan. Id. at 6.
B. PROCEDURAL HISTORY
On August 18, 2018, the Employer Trustees commenced this federal action by the filing of a Complaint and Petition to Enforce Arbitration Award. ECF No. 1. The Union Trustees filed an Answer, Counterclaim and Demand for Jury Trial. ECF No. 13. On November 13, 2018, the Employer Trustees filed an Amended Complaint. ECF No. 17. In the Amended Complaint, the Employer Trustees assert two claims. In Count I, the Employer Trustees seek enforcement of the December 13, 2016 Fagan Award precluding the Union Trustees from capping the hourly rate for the payment of the attorneys' fees of the Employer Trustees. Id. ¶¶ 19-21. In Count II, the Employer Trustees assert a breach of fiduciary duty claim against the Union Trustees for refusal to comply with the Fagan Award issued on December 13, 2016. Id. ¶¶ 22-25. In response, the Union Trustees filed an Answer to Amended Complaint and Counterclaim. ECF No. 22. In the counterclaim, the Union Trustees bring an action for removal of fiduciaries and to recover losses resulting from a breach of fiduciary duty pursuant to Sections 502(a)(2) and 409 of ERISA. Id. at 4 - 7. The gist of the counterclaim is the assertion by the Union Trustees that the Employer Trustees “have expended hundreds of thousands of dollars in fund assets pursuing litigation for the sole purpose of seeking to obtain personal compensation in the amount of $600.00 per meeting from the Welfare Fund.” Id. ¶ 7. The Employer Trustees filed a Reply to Defendants' Counterclaim and Affirmative Defenses. ECF No. 24.
The parties conducted discovery. Discovery closed on July 31, 2019. ECF Nos. 36 and 42.
On October 1, 2019, the Employer Trustees filed Plaintiffs' Motion for Summary Judgment. ECF No. 46. The Union Trustees filed Defendants'/Counter-Plaintiffs' Motion for Partial Summary Judgment. ECF No. 48. The parties have filed responses, briefs in opposition and reply briefs. ECF Nos. 52, 53, 54, 56, 65 and 67. At the request of the Court, the parties filed a Joint Concise Statement of Material Facts and Joint Appendix to the Joint Statement of Material Facts. ECF Nos. 44 and 45. The parties have also filed their respective concise statements of facts, counter concise statements of facts, reply to counter statement of facts, declarations and appendices in support. ECF Nos. 47, 49, 50, 51, 55, 57, 58, 59, 60, 61, 62, 63, 64 and 66.
The motions for summary judgment having been fully briefed and are now ripe for consideration.
C. STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 56, “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). An issue of material fact is in genuine dispute if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Doe v. Abington Friends Sch., 480 F.3d 252, 256 (3d Cir. 2007) (“A genuine issue is present when a reasonable trier of fact, viewing all of the record evidence, could rationally find in favor of the non-moving party in light of his burden of proof”). Thus, summary judgment is warranted where, “after adequate time for discovery and upon motion . . . a party . . . fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Marten v. Godwin, 499 F.3d 290, 295 (3d Cir. 2007) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).
The moving party bears the initial burden of demonstrating to the court that there is an absence of evidence to support the non-moving party's case. Celotex, 477 U.S. at 322; Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 140 (3d Cir. 2004). “[W]hen the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts . . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue for trial.'” Scott v. Harris, 550 U.S. 372, 380 (2007) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986)).
In deciding a summary judgment motion, a court must view the facts in the light most favorable to the nonmoving party and must draw all reasonable inferences and resolve all doubts in favor of the nonmoving party. Matreale v. N.J. Dep't of Military & Veterans Affairs, 487 F.3d 150, 152 (3d Cir. 2007); Woodside v. Sch. Dist. of Phila. Bd. of Educ., 248 F.3d 129, 130 (3d Cir. 2001).
D. DISCUSSION
1. Employer Trustees' Motion for Summary Judgment
In the Motion for Summary Judgment, the Employer Trustees seek the entry of summary judgment as to Count I (action to enforce the Fagan Award) and Count II (breach of fiduciary duty) of the Amended Complaint and as to the counterclaim of the Union Trustees. ECF No. 46. For purposes of review, we will separately address the Motion for Summary Judgment as to the Amended Complaint and as to the counterclaim.
a. Amended Complaint
In support of the Motion for Summary Judgment, the Employer Trustees make two distinct arguments. We will address the arguments separately.
(1) Whether the Union Trustees are precluded from asserting defenses to the Amended Complaint because they should have been raised in a motion to vacate the Fagan Award.
The award of Arbitrator Fagan was rendered on December 13, 2016. ECF Nos. 37 and 45-11. The Employer Trustees argue that instead of raising any objections to the Fagan Award in a motion to vacate or modify, the Union Trustees chose instead to ignore the Fagan Award and take matters into their own hands by refusing to pay all of the legal fees charged by the Employer Trustees' counsel and attempting to limit the amount of legal fees that they could pay. ECF No. 53 at 7. The Employer Trustees assert that the Union Trustees had ample opportunity to move a court to vacate or modify the award, but they did not do so. As such, the Employer Trustees take the position that the Union Trustees are now precluded from asserting defenses to complying with the Fagan Award which could have been raised in a motion to vacate or modify the Award. Id.
The Employer Trustees point to decisions of the United States Court of Appeals of the Third Circuit holding that defenses which were in the nature of grounds for vacating an arbitration award cannot be raised in the enforcement proceeding where no motion to vacate or modify the award has been advanced.
In Service Employees International Union v. Office Center Services, Inc., 670 F.2d 404 (3d Cir. 1982), the Third Circuit addressed the question of whether affirmative defenses which are in the nature of grounds for vacating an arbitration award may be raised in a proceeding to confirm the award under Section 301 of the LMRA, 29 U.S.C. § 185, where there was a failure to move to vacate an unfavorable award within the limitations period for actions to vacate. The Third Circuit held that the failure to move to vacate an arbitration award during the prescribed time period for doing so bars the assertion of objections which could have been raised in a motion to vacate, modify or correct the award in a subsequent proceeding brought to confirm.
Accordingly, we hold that in a Section 301 proceeding to confirm a labor arbitration award the relevant state statute of limitations is applied, and, under the Pennsylvania statute applicable ... the failure to raise objections within three months which could have been raised in a motion to vacate, modify or correct the award bars raising them in confirmation proceedings held thereafter.Id. at 412.
The Third Circuit reaffirmed its holding in Office Center Services in Service Employees International Union Local 36, AFL-CIO v. City Cleaning Company, Inc., 982 F.2d 89 (3d Cir. 1992). There, the Circuit recognized that under Pennsylvania law, the Pennsylvania statute governing actions to vacate, modify or correct a labor arbitration award, 42 Pa. C.S.A. § 7314(b), requires that such an action must be filed within 30 days of the issuance of the award. Id. at 93. Further, citing its prior decision in Office Center Services, the Circuit reiterated:
[I]f a defendant has important defenses to an arbitration award, he should raise them within the period prescribed for actions to vacate rather than wait to raise them as defenses in a confirmation proceeding.Id. (quoting Office Center Services, 670 F.3d at 412).
In applying this rule, the Circuit rejected City Cleaning's argument that the arbitration award was rendered unenforceable by the settlement of an unfair labor practice complaint filed by the National Labor Relations Board (“NLRB”) against the union on the basis that the award violated public policy because the award imposed upon City Cleaning's employees “terms and conditions of the employment bargained for by a union which does not represent them.” Id. at 92.
In the instant case, the Union Trustees never attempted to modify, vacate or correct the Fagan Award. Therefore, the Employee Trustees argue that the Fagan Award should be summarily confirmed.
In response, the Union Trustees argue that they were not required to file a motion to vacate the Fagan Award. ECF No. 56. Instead, the Union Trustees assert that they “have no problem complying with Arbitrator Fagan's Award and have not at any time since the award sought to impose a blanket $250 per hour limitation on attorneys' fees.” Id. at 17. However, the Union Trustees claim that the only attorneys' fees and costs that they have refused to pay are those attributable to the Employer Trustees' compensation dispute. Id. (That dispute was separately addressed in the Zobrak Award finding that the current Trust Agreement does not allow for payment of Trustees for attendance at Trust meetings, supra pp. 4-5.)
In their Reply Brief, the Employer Trustees point out that the Union Trustees fail to contest the Third Circuit precedent relied upon by the Employer Trustees to support their argument that the Union Trustees are precluded from asserting defenses to the enforcement of the Fagan Award. ECF No. 67 at 2. The Employer Trustees also argue they have continuously referenced Arbitrator Fagan's holding that he “has no authority to add language to the January 1, 2000 Trust Agreement which provided the result the Union Trustees are requesting.” ECF No. 45-11 and ECF No. 67 at 2.
At the outset of addressing this issue, the Court finds that the response of the Union Trustees is lacking in support of applicable case law. Instead, their response is comprised of references to fairytales, sarcasm and self-serving misrepresentations of the record before the Court as it relates to this issue. This approach is lacking in relevant substance and disconcerting.
Upon review, it is clear that the United States Court of Appeals for the Third Circuit, and district courts in this Circuit, have consistently held that a party who fails to timely bring an action to modify or vacate an arbitration award, is barred from raising defenses thereafter. In United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union v. Neville Chemical Company, 298 Fed. App'x 209 (3d Cir. 2008), the Third Circuit enforced an arbitration award for the union relying on its holding in City Cleaning Company:
As the District Court concluded, Neville waived these arguments. An employer's failure to raise defenses to the enforcement of an arbitration award in a timely motion to vacate or modify the award bars it from raising them thereafter. As Neville failed to bring an action to modify, vacate or correct the arbitration award within thirty days as required under Pennsylvania law, it is precluded from arguing that it was unable to reinstate McCann [the Grievant] due to physical inability and that it cannot be ordered to pay back pay.Id. at 211 (internal citations omitted).
District courts that have been confronted with the issue presently before this Court have uniformly followed the rule of Office Center Services and City Cleaning. See, e.g., SEIU Healthcare of Pa. v. Reg'l Hosp. of Scranton, No. 3:13-cv-02669, 2015 WL 150069 (M.D. Pa. Jan. 12, 2015); Int'l Union of Operating Engineers, Local 542 v. Williams Equip. Corp., No. 05-cv-5498, 2006 WL 2726839 (E.D. Pa. Sept. 19, 2006); Local 863 Int'l Bhd. of Teamsters v. Supermarket Distribution Servs., Inc., No. 06-3827, 2008 WL 877855 (D.N.J. March 28, 2008); Int'l Union of Bricklayers & Allied Craftworkers, Local 5 v. Inter-state Tile & Mantel Co., Inc., No. 1:07-cv-1150, 2008 WL 3245464 (M.D. Pa. Aug. 6, 2008); and Local 966 Int'l Bhd. of Teamsters v. JOB, Inc., No. 2:12-cv-00202, 2013 WL 1845607, at *3 (D.N.J. April 3 0, 2013) (citing the Third Circuit's statement in Office Center Services, 670 F.2d at 412: “if a defendant has important defenses to an arbitration award he should raise them within the period prescribed for actions to vacate rather than wait to raise them as defenses in a confirmation proceeding”).
Where a party to an arbitration proceeding applies to the court for an order enforcing the arbitration award, the court should enter such an order unless the award is challenged in a timely action to vacate. As addressed above, no motion to vacate or modify the Fagan Award was ever filed by the Union Trustees. See Profl Administrators Ltd. v. Kopper-Glo Fuel, Inc., 819 F.2d 639, 642 (6th Cir. 1987) (“[A]n action to confirm the award should be a summary proceeding, not a proceeding in which the defendant seeks affirmative relief.”); Florasynth, Inc. v. Pickholz, 750 F.2d 171, 177 (2d Cir. 1984) (“When the three month limitations period has run without vacation of the arbitration award, the successful party has a right to . . . obtain its confirmation in a summary proceeding.”).
In the instant dispute, the Union Trustees, never filed a motion to modify, vacate or correct the Fagan Award, which recognized that there was no cap on the hourly rate for Trustee legal fees. Nonetheless, the Union Trustees have failed to act in accordance with the Fagan Award and have failed to pay certain of the attorneys' fees of the Employer Trustees. Therefore, consistent with Third Circuit law, the Fagan Award should be summarily enforced.
Although we could conclude our analysis with the procedural finding that the failure to modify, vacate or correct the Fagan Award is fatal to the arguments of the Union Trustees in opposition to the Motion for Summary Judgment of the Employer Trustees, in the interest of completeness, we will address the merits of the motions for summary judgment.
(2) Even if it were appropriate to consider the Union Trustees' argument that the Fagan Award violates ERISA, this contention is pretext and summary judgment should be entered as to Count I enforcing the Fagan Award.
In opposing the Motion for Summary Judgment on the Amended Complaint, the Union Trustees assert that compliance with the Fagan Award would constitute a breach of fiduciary duty under ERISA. ECF No. 56 at 3. Nonetheless, the Union Trustees argue that the payment of the Employer Trustees' attorneys' fees incurred “in an effort to enhance the trustees with the benefit of compensation not specifically authorized by the Trust Agreement is a violation of ERISA.” Id. at 24. As such, the Union Trustees assert that ERISA privileges them to ignore the Fagan Award. Id. at 23-24.
The Employer Trustees argue that undisputed evidence discloses that the proffered ERISA excuse is merely pretext for the Union Trustees avoiding the enforcement of the Fagan Award and the payment of the attorneys' fees of the Employer Trustees. ECF No. 53 at 9 - 10. The Employer Trustees point to six categories of undisputed evidence in support of their argument of pretext. Id.
First, the Employer Trustees point out that the Union Trustees actually authorized payment of the Employer Trustees attorneys' fees for an extended period of time after the deadlocked motion without making any claim of breach of fiduciary duty. Id. at 10. Specifically, the Union Trustees authorized payment of Employer Trustees' attorneys' fees, including those related to the December 3, 2014 Deadlock, until February 8, 2017. ECF No. 44 ¶ 38; ECF No. 45-13. Furthermore, no Union Trustee affirmatively voted against the authorization for the payment of attorneys' fees related to the payment for attendance at meetings deadlock until March 8, 2017. ECF No. 44 ¶ 38; ECF No. 45-14.
Second, at no time, up through and including the date of the Fagan Award, did the Union Trustees refuse to authorize payment of any attorneys' fees because of an alleged breach of fiduciary duty. ECF No. 44 ¶ 38. Of note, the Union Trustees never asserted at the arbitration hearing or in their post-hearing brief a legal inability under ERISA to pay any of the attorneys' fees associated with the December 2014 Deadlock. ECF No. 47 ¶ 7; ECF No. 56 at 23. As such, the Employer Trustees argue that only after the Union Trustees received the Fagan Award, that went against them, did the Union Trustees contrive the ERISA breach of fiduciary duty argument. ECF No. 53 at 10-11.
Third, after the issuance of the Fagan Award, the Union Trustees attempted to circumvent the Award by again limiting the hourly rate and not invoking ERISA's breach of fiduciary duty rules. Id. at 11. After the Fagan Award, the Union Trustees refused to make attorneys' fees payments for all pending matters. The Union Trustees made clear that “their position has not changed” as a result of the Fagan Award except that they were now willing to pay $260 per hour instead of the $250 per hour limit that was the subject of the arbitration and rejected by Arbitrator Fagan. ECF No. 44 ¶ 38; ECF No. 47 ¶ 9; ECF No. 51-4 at 13-14.
Fourth, unilaterally limiting payment to $260 per hour was clearly prohibited by the Fagan Award. In the Award, Arbitrator Fagan declined to set a required maximum fee of $250 per hour, holding that he had no authority under the Trust Agreement to set any hourly rate limitation, at $250 per hour or otherwise. Fagan held that he “has no authority to add language to the January 1, 2000 Trust Agreement which provide the result the Union Trustees are requesting.” ECF No. 44 ¶ 37; ECF No. 45-11 at 6. As a result, the Employer Trustees argue that the Union Trustees' attempt to unilaterally impose a $260 per hour maximum was contrary to the Fagan Award.
Fifth, the Employer Trustees note that they were anxious to avoid additional and needless litigation, and the added expense over an issue already litigated and decided by Arbitrator Fagan. In response to those overtures by the Employer Trustees to avoid litigation, the Union Trustees never raised breach of fiduciary duty, documented in correspondence with counsel for the Employer Trustees. ECF No. 47 ¶ 10; ECF No. 51-7.
Sixth, the Union Trustees articulated their current breach of fiduciary duty defense only after they determined a higher ceiling of $260 per hour for all matters was also likely to fail. The Union Trustees now assert that they do not oppose the hourly rate charged by Employer Trustees' counsel. However, the undisputed evidence shows even this most recent and current defense to be only another attempt by the Union Trustees to circumvent compliance the Fagan Award.
Finally, the Employer Trustees point out that while the Union Trustees assert that they cannot legally authorize any fees associated only with the December 3, 2014 Deadlock, the Union Trustees have, in fact, roadblocked other payments as well. For example, the Union Trustees have not authorized payment for fees incurred in this litigation. ECF No. 44 ¶ 38; ECF No. 45-46; ECF No. 45-6.
In their response in opposition to the Motion for Summary Judgment, the Union Trustees admit that they did not raise ERISA as a bar to the payment of the Employer Trustees' attorneys' fees before Arbitrator Fagan. ECF No. 56 at 22 - 23. The Union Trustees assert that Arbitrator Fagan was never asked to determine if any payments to any lawyer were payable under ERISA. Id. at 23. As such, they state that they are not arguing that the Fagan Award violated ERISA. Id.
Nonetheless, the Union Trustees turn to ERISA as a defense to the payment of the attorneys' fees of the Employer Trustees in accordance with the Fagan Award. The Union Trustees take the position that legal fees paid in an effort to commit violations of 29 U.S.C. § 1106 constitutes a per se violation of fiduciary duty. Id. at 23 - 24. As such, the Union Trustees contend that the payment of the attorneys' fees of the Employer Trustees, incurred in an effort to enhance the Trustees with the benefit of compensation, not specifically authorized by the Trust Agreement, is a violation of ERISA.
Considering the arguments of the parties on this issue, it is apparent to this Court that the Union Trustees are trying to use ERISA as a pretextual argument to block enforcement of the Fagan Award.
First, we address the scope of the Fagan Award. This Court finds that the Union Trustees incorrectly assert that Fagan Award was limited to only deciding if $250 was the correct hourly rate and not $260. This was not the holding of Arbitrator Fagan. His ruling was clear. He had no authority under the Trust Agreement to set a maximum hourly rate for the attorneys' fees of the Employer Trustees. ECF No. 45-11 at 5-6. Arbitrator Fagan's holding, which was based entirely on the authority of the impartial umpire to make the requested changes, would not change with an altered fee limit of $260 per hour, $300 per hour or any other cap that the Union Trustees unilaterally attempted to impose. Simply put, the record reflects that Arbitrator Fagan clearly and unequivocally ruled that the Union Trustees could not put a cap on the hourly rate paid to attorneys for the Employer Trustees. Construing the evidence in the light most favorable to the Union Trustees as the nonmoving party, Arbitrator Fagan held that he had no authority to limit the hourly rate for the attorneys for the Employer Trustees.
Second, after their failed attempt to limit the hourly rate of legal counsel for the Employer Trustees, the Union Trustees also argue, in opposing summary judgment, that the payment of certain attorneys' fees relative to the deadlocks at issue would be violative of ERISA. Again, this is not the case.
In this matter, the Union Trustees claim that ERISA bars them from payment of the attorneys' fees of the Employer Trustees relative to the December 3, 2014 Deadlock. However, as recognized by Arbitrator Zobrak, the Trustees had a previous history of paying Trustees a fee for attending Trustee meetings and such payment was, in fact, permitted by the 1967 version of the Trust Agreement. Here, contrary to the attempt by the Union Trustees to mischaracterize this dispute, there was a legitimate good faith dispute between the Trustees, resulting in a deadlock, that was resolved by Arbitrator Zobrak relative to compensation of the Trustees.
Of note, as recognized by the Employer Trustees in their Brief in Support, ERISA specifically allows the payment of legal fees and exempts such fees from the prohibited transactions of ERISA. 29 U.S.C. § 11802(b)(2); ECF No. 53 at 13.
Therefore, again construing the evidence in the light most favorable to the Union Trustees as the nonmoving party, this Court finds that there is no ERISA violation that precludes enforcement of the Fagan Award relative to the payment of the Employer Trustees relative to any deadlocked matter under the Trust Agreement, including per the Trustee meeting compensation dispute referenced herein. As such, assuming, for argument sake, that the Union Trustees' defenses are not barred, as discussed above, it is recommended the Motion for Summary Judgment of the Employer Trustees as to Count I of the Amended Complaint should be granted and the Fagan Award enforced.
(3) Summary judgment is warranted on the breach of fiduciary duty claim against the Union Trustees - Count II.
The Employer Trustees also move for summary judgment on their breach of fiduciary duty claim against the Union Trustees for failure to comply with the Fagan Award, set forth in Count II of the Amended Complaint. The Employer Trustees rely on Section 404(a)(1)(D) of ERISA, 29 U.S.C. § 1104(a)(1)(D), which requires fiduciaries to act “in accordance with the documents and instruments governing the plan.” The Employer Trustees point to the undisputed fact that the Trust Agreement, which governs the Fund, dictates that the Fagan Award is final and binding upon the parties. ECF No. 44 ¶ 4.
In their Brief in Support of Plaintiff's Motion for Summary Judgment, ECF No. 53, the Employer Trustees argue that the Union Trustees have caused a waste of Fund assets over an extended period of time, now exemplified by the necessity of this litigation. The Employer Trustees further assert that the wasteful expense of the Union Trustees forcing this federal lawsuit is an “obstructionist” tactic and the Union Trustees have insubordinately refused to comply with the Fagan Award and then made up and changed the reason for doing so, a tactic designed to give them the best chance of escaping liability. Id. at 14. As such, the Employer Trustees assert that there “can be no more compelling example of a breach of fiduciary duty deserving of attorneys' fee reimbursement to the Fund by the Union Trustees and of Union Trustee removal as Trustees than that presented here.” Id.
In their Memorandum of Law in Opposition to the Plaintiffs'/Counter-Defendants' Motion for Summary Judgment, the Union Trustees only address this ground for summary judgment in a single sentence. In the “Introduction” section of the Memorandum of Law, the Union Trustees argue that the Court should deny summary judgment as to Count II of the Amended Complaint because this “breach of fiduciary duty claim is defective as a matter of law because it seeks to recover payments to a third-party rather than losses incurred by the Welfare Fund.” ECF No. 56 at 2. The Union Trustees make no further argument and then refer the Court to pages 8 -15 of their Brief in Support of their Motion for Partial Summary Judgment as to Counts I and II. ECF No. 52.
The failure by the Union Trustees to directly respond to the Motion for Summary Judgment of the Employer Trustees as to Count II in a clear and organized manner fails to comply with the express requirements of Local Civil Rule 56.C.2.
In the Brief in Support of their Motion for Partial Summary Judgment, the Union Trustees argue that summary judgment should be granted dismissing the Employer Trustees' claim against the Union Trustees for breach of fiduciary duty because the claim is deficient as a matter of law. Id. at 10-17. The Union Trustees argue that the Employer Trustees have failed to introduce sufficient evidence from which a factfinder could find that all of the necessary elements of a claim for breach of fiduciary duty have been proven. The Union Trustees identify the requisite elements of a breach of fiduciary duty claim to include that “(1) a plan fiduciary (2) breach[ed] an ERISA-imposed duty (3) causing a loss to the plan.” Leckey v. Stefano, 501 F.3d 212, 225-226 (3d Cir. 2007).
In opposing the Employer Trustees' Motion for Summary Judgment on their breach of fiduciary duty claim against the Union Trustees for failing to abide by the Fagan Award, the Union Trustees address each of the requisite elements for a breach of fiduciary duty claim.
First, the Union Trustees acknowledge that there is no question that the Union Trustees, individually and collectively, are fiduciaries of the Fund. Id. at 10.
Second, the Union Trustees assert that the Employer Trustees have failed to produce any evidence from which a factfinder could find that the Union Trustees breach their ERISA imposed duties. Id. at 10-13. The Union Trustees contend that they adhered to their fiduciary duties with respect to considering the requested reimbursements for legal expenses incurred by the Employer Trustees. Id. The Union Trustees take the position that the Fagan Award was limited to disallowing the $250 per hour limit on attorneys' fees but did not prohibit them from exercising their fiduciary duties in considering request for reimbursement of attorneys' fees or setting other caps. Id. at 11.
Third, the Union Trustees argue the Employer Trustees have failed to produce any evidence from which a factfinder could find that the alleged breach of fiduciary duty caused losses to the Fund. The Union Trustees assert that the Employer Trustees do not seek to recover for losses but, instead, seek to recover individual relief for themselves in the form of payment of legal fees. Id. at 12-17.
In their Reply Brief, the Employer Trustees identify what they characterize as false representations made by the Union Trustees in their brief. ECF No. 67 at 3. Undermining the argument of the Union Trustees that they did not authorize the payment of legal fees for purposes of attempting to gain personal compensation from the Fund, the Employer Trustees point out that all of the their legal invoices were paid by the Fund at the rate charged until January 10, 2018. Id.; ECF No. 60 ¶¶ 4-5; ECF Nos. 60-1 to 63-1. In addition, the Fund Director verified that all of the Employer Trustees' legal invoices were paid as of September 14, 2016, the date of the Fagan Arbitration hearing. ECF No. 67 at 3; ECF No. 59-1; ECF No. 60, Appx. 1.
Upon review of the pending Motion for Summary Judgment of the Employer Trustees, it is important to note that the Employer Trustees' breach of fiduciary duty claim is narrow and limited to the refusal of the Union Trustees to comply with the Fagan Award. ECF No. 17 at 4-5.
Section 404(a)(1)(D) of ERISA, 29 U.S.C. § 1104(a)(1)(D), requires that fiduciaries “act in accordance with documents and instruments governing the plan.” In this case, Section 3.15 of the Trust Agreement, which governs this Fund, provides that an arbitration award is final and binding on the parties. ECF No. 17-1 at 25-26.
As noted by the Union Trustees, the requisite elements for a breach of fiduciary claim were recognized by the United States Court of Appeals for the Third Circuit in Leckey v. Stefano. See also Sweda v. Univ. of Pa., 923 F.3d 320, 328 (3d Cir. 2019).
As to the first element, there is no dispute that the Union Trustees are fiduciaries of the Plan at issue here.
As to the second element requiring breach of an ERISA imposed duty, the parties dispute whether this element, construing the evidence in the light most favorable to the nonmoving party, has been established.
The Employer Trustees correctly rely on applicable law that established breach of fiduciary duty. They cite to the decision of the United States Court of Appeals for the Eleventh Circuit holding that “ ... a failure to comply with the arbitrator's direction is automatically a breach of fiduciary duty under the fund's Agreement and Section 404(a)(1)(D) of ERISA, 29 U.S.C. § 1104 (a)(1)(D).” Ironworkers Local 272 v. Bowen, 695 F.2d. 531, 535 (11th Cir. 1983); see also Kay v. Thrift & Profit Sharing Plan for Employees of Boyertown Casket Co., 780 F.Supp. 1447, 1460 (E.D. Pa. 1991).
In this instant case, construing the evidence in the light most favorable to the Union Trustees as the nonmoving party, it is apparent that the Union Trustees have purposefully chosen to construe the Fagan Award as very narrowly limited to the issue of the proposed $250 per hour cap on attorneys' fees. This construction completely ignores the plain language of the Arbitrator Fagan's Award finding that there is “no suggestion that monies withdrawn from the Fund, by the Union trustees and Employer Trustees, for similar legal expenses, were ever equal in amount.” and that he had “no authority to add language to the January 1, 2000 Trust Agreement which provides the result the Union Trustees are requesting.” ECF No. 45-11. It is clear that Arbitrator Fagan could not impose an hourly rate cap in any amount, $250, $350 or any other amount, for the attorneys' fees of the Employer Trustees. As such, the Court finds that construing the evidence in the light most favorable to the Union Trustees, that the Union Trustees have adopted an unfounded interpretation of the Fagan Award that is not support by the undisputed facts of record, in particular, the plain language of the Fagan Award. The Union Trustees clearly failed to comply with the Fagan Award in refusing to pay the legal fees of the Employer Trustees and have breached their fiduciary duties requiring them to comply with the Award.
Turning to the consider the third element necessary to establish a breach of fiduciary duty claim, we consider whether the conduct of the Union Trustees has caused loss to the Plan. Clearly, the Union Trustees have caused losses to the Fund and wasted Fund assets, as evidenced by the necessity of the Employer Trustees having to bring this federal lawsuit in order to enforce compliance with the Fagan Award.
Again, construing the evidence in the light most favorable to the Union Trustees as the nonmoving party, it clear that the Employer Trustees have established a breach of fiduciary duty claim against the Union Trustees for failing to comply with, and utterly disregarding, the Fagan Award. Based on this finding, summary judgment should be entered in favor of the Employer Trustees as to their breach of fiduciary duty claim set forth in Count II of the Amended Complaint.
Furthermore, however, the Court does not recommend removal of the Union Trustees as relief. The parties in this action have a long history of litigation, before arbitrators and this Court, over the Trust Agreement. This history is so adversarial that this Court doubts that the parties could ever agree that a blue sky is blue. As it directly relates to the breach of fiduciary duty claim and the Fagan Award, construing the evidence in the light most favorable to the Union Trustees as the nonmoving party, we do not go so far as to make a finding of “a glaring obstructionist tactic” warranting removal of the Union Trustees as the Employer Trustees seek. Nonetheless, we recommend that judgment be entered in favor of the Employer Trustees on Count II and that the Employer Trustees be awarded the following relief: an order requiring the payment of any all attorneys' fees, expenses and costs of the Employer Trustees that are remain unpaid, including but not limited to this lawsuit; requiring the Union Trustees to make good on any and all other losses; the award of pre-judgment and post-judgment interest and such other remedial and equitable relief as appropriate.
b. The Counterclaim
When the Union Trustees filed their Answer to the Amended Complaint, they also asserted a counterclaim identified as “action for removal of fiduciaries and to recover losses resulting from a breach of fiduciary duty pursuant to Sections 502(a)(2) and 409 of ERISA.” ECF No. 22 at 4 -7. The gist of the counterclaim is that the Union Trustees complain that the Employer Trustees “expended hundreds of thousands of dollars in Fund assets pursuing litigation for the sole purpose of seeking to obtain person compensation in the amount of $600.00 per meeting from the Welfare Fund.” Id. at 5. The Union Trustees assert that no reasonably prudent fiduciary would have expended such a large sum of Fund assets for personal gain. Id. at 6. As such, the Union Trustees claim that the use of fund assets in the pursuit of litigation seeking to obtain compensation for meeting attendance is a breach of fiduciary duty in violation of ERISA. Id. at 7.
In their Motion for Summary Judgment, the Employer Trustees also move for summary judgment on the counterclaim of the Union Trustees. ECF No. 52 and ECF No. 53 at 15 - 17. The Employer Trustees seek summary judgment on two grounds.
First, the Employer Trustees assert that the Union Trustees vigorously raised the issue of attorneys' fees expended in the hearing before Arbitrator Fagan. The Employer Trustees point out that the Union Trustees' post-hearing brief was almost identical to their current counterclaim and alleged “owing to the litigation costs spiraling out of control, the Union Trustees merely sought to place a reasonable limit on attorneys' fees in order to slow the hemorrhaging of money from the Fund.” ECF No. 47 ¶ 7. The Employer Trustees refer the Court to Arbitrator Fagan's observation that “[t]here is no suggestion or claim that monies withdrawn from the Fund, by the Union Trustees and Employer Trustees, for similar legal expenses, were ever equal in amount during this period.” ECF No. 45-11 at 5-6. Therefore, the Employer Trustees argue that the counterclaim should be dismissed as a disguised attempt to vacate the Fagan Award, well beyond the allowable time for doing so.
Second, the Employer Trustees also argue that the counterclaim fails for the fundamental reason that the Employer Trustees have not wasted Fund resources. They argue that the undisputed facts show the factual premise of the counterclaim to be lacking. The Employer Trustees point to the undisputed fact that the deadlocked motion sought meeting attendance payments for any eligible trustee - Union Trustee or Employer Trustee. ECF No. 44 ¶ 13. The meeting minutes reflect that one of the Union Trustees was excused from the vote as a potential beneficiary of the motion. Id.
In their Memorandum of Law in Opposition, the Union Trustees argue that this Court should deny the Employer Trustees' Motion for Summary Judgment as to the Union Trustees' counterclaim for breach of fiduciary duty because there are genuine issues of material fact that must be resolved. ECF No. 56 at 3. Specifically, the Union Trustees assert that a court should deny a motion for summary judgment with respect to a breach of fiduciary duty claim under ERISA if there is sufficient evidence from which a factfinder could find that “(1) a plan fiduciary 92) breach[ed] an ERISA- imposed duty (3) causing a loss to the plan.” Leckey, 501 F.3d at 225-226.
In this case, as addressed above, it is not in dispute that each of the Employer Trustees are fiduciaries. As such, the question before this Court is whether there is sufficient evidence from which the factfinder could find that the Employer Trustees breached their fiduciary duty and whether the alleged breach caused losses to the Plan. ECF No. 56 at 3-16.
As to the element of breach of ERISA-imposed fiduciary duty, the Union Trustees assert that there is more than sufficient evidence in the record that the Employer Trustees breached these duties. Id. at 5. The Union Trustees rely on the ERISA-imposed duty of fiduciaries to refrain from dealing with plan assets for their own account. See 29 U.S.C. § 1106(b)(1). They point to Section 406(b)(1) of ERISA which provides that it is a prohibited transaction for a fiduciary to “deal with assets of the plan in his own interest or for his own account.” ECF No. 56 at 5. In this context, the Union Trustees contend that the Employer Trustees have breach multiple Employer-imposed fiduciary duties. They point to three particular violations.
First, the Union Trustees assert that the Employer Trustees failed to act as reasonably prudent fiduciaries by causing the Fund and its insurance carrier to incur more than $600,000 in attorneys' fees and costs in pursuit of compensation for meeting attendance for their own personal benefit. Id. at 6-7. The Union Trustees further argue that these efforts to obtain personal compensation from the Fund provided no benefit whatsoever to the participants or their beneficiaries. Id. at 7.
In the Memorandum of Law in Opposition, ECF No. 56, and Counter Concise Statement of Facts, ECF No. 57, the Union Trustees make collective reference to fees that the Fund and its insurance carrier incurred. Of particular note, nowhere in these filings do the Union Trustees differentiate the portion of the $620,641.69 in attorneys' fees and costs paid by the insurance carrier as opposed to actually paid by the Fund.
The Union Trustees also argue that even after receiving the Zobrak Award that found that the Trust Agreement did not permit the trustees to receive compensation for their services, the Employer Trustees “continued on their wasteful expenditure of trust fund assets on litigation by filing a frivolous action to vacate the Zobrak Award in Employer Trustees v. Union Trustees, Case No. 2:19-cv-00388 (W.D.Pa.).” Id. The other federal action remains pending, so we will not comment on the merits of the Union Trustees' argument.
Second, the Union Trustees contend that the Employer Trustees violated the ERISA-imposed fiduciary duty to comply with the terms of the instruments governing the Plan by causing the Fund to expend Fund assets on litigation in pursuit of payments clearly prohibited by the terms of the Trust Agreement. The Union Trustees base this argument on the Zobrak Award finding that the Trust Agreement does not permit the trustees to receive personal compensation for attending meetings. Id.
Third, the Union Trustees contend that the Employer Trustees violated their ERISA-imposed fiduciary duty to the Fund “by using their authority, responsibility and control as Trustees to attempt to cause the Fund to make payments to themselves for services in violation of Section 406(b)(1) of ERISA. Id. at 13-14. The Union Trustees assert that Employer Trustees Dillner and Miller would have been immediately eligible, and Trustee Doutt would have been eligible soon thereafter, to receive compensation for meeting attendance but did not recuse themselves. Id. at 14.
As to the third requisite element of a breach of ERISA-imposed duty, the Union Trustees assert that the Employer Trustees' breaches of fiduciary duties caused losses to the Plan. Specifically, the Union Trustees state that the efforts of the Employee Trustees to obtain personal payments in the amount of $600 per meeting caused the Fund and its insurance carrier to incur $620,641.69 in litigation related attorneys' fees and expenses as of April 30, 2019. Id. at 15; ECF No. 57 ¶ 13. The Union Trustees argue that these expenditures do not benefit the Plan participants and serve no legitimate purpose related to the administration of the Fund. ECF No. 56 at 15. As such, they argue that the Employer Trustees have wasted Fund assets. Id. at 16.
In their Reply Brief in Support of Plaintiffs' Motion for Summary Judgment, the Employer Trustees make two arguments. First, they point out that Union Trustees' argument of breach of fiduciary duty by the Employer Trustees for seeking payment for meeting attendance is insufficient as a matter of law because payments had been previously made to eligible trustees for meeting attendance for over 20 years. ECF No. 67 at 3-4; ECF No. 50-2 at 28-31. Second, the Employer Trustees acknowledge that the Fund has suffered losses but those losses have been caused by the conduct of the Union Trustees. Id. Finally, the Employer Trustees note in footnote 4 of their Reply Brief that many of the arguments of the Union Trustees are made in an attempt to relitigate the other case between the same parties pending in this District.
As the outset of considering the Employer Trustees' Motion for Summary Judgment on the Union Trustees' counterclaim for breach of fiduciary duty, the Court recognizes that this counterclaim is primarily based upon the request of the Employer Trustees that all trustees be paid $600 per meeting for attendance. That request was addressed in the Zobrak Award, where Arbitrator Zobrak found that:
The Union pointed out that the 1967 Trust Agreement did contain language for the payment of fees for attendance at meetings. That language no longer appears in the controlling Trust Agreement. This observation is critical to the determination of this matter. When a provision that clearly covers the matter at hand, such as the provision in the 1967 Trust Agreement, has been removed and no longer appears in the Trust Agreement, it must be concluded that the controlling Trust Agreement does not allow for payment for attendance at Trust meetings.ECF No. 45-7 at 13-14. The portion of the Zobrak Award, relevant to the breach of the fiduciary duty counterclaim against the Employer Trustees in this case, is the subject of the pending case before United States District Judge Joy Flowers Conti in Employer Trustees v. Union Trustees, Case No. 2:19-cv-388 (W.D.Pa.) (“the Zobrak Award Case”). In that case, the Employer Trustees are seeking to partially vacate the Zobrak Award, and, if the relevant portion of the Award is not vacated, for declaratory judgment. Cross motions for summary judgment are currently pending.
The current status of the pending Zobrak Award Case raises the unique circumstance that this Court cannot, as a practical matter, give full consideration to the Motion for Summary Judgment of the Employer Trustees as to the Union Trustees' counterclaim until such time as the Zobrak Award Case is concluded. If Judge Conti grants summary judgment in favor of the Employer Trustees and vacates the relevant portion of the Zobrak Award, such a ruling will directly impact the breach of fiduciary counterclaim filed by the Union Trustees in this case. Similarly, if Judge Conti grants summary judgment in favor of the Union Trustees and effectively affirms the relevant portion of the Zobrak Award, such a ruling will also impact, albeit differently, consideration of the counterclaim in this case. As such, in the interests of judicial economy, it is recommended that the Motion for Summary Judgment of the Employer Trustees as to the counterclaim of the Union Trustees be denied without prejudice to refile following the conclusion of the Zobrak Award Case.
2. Union Trustees' Partial Motion for Summary Judgment
A. Amended Complaint
In the Partial Motion for Summary Judgment, the Union Trustees seek the entry of summary judgment in their favor as to the claims brought against them by the Employer Trustees in Count I (action to enforce Fagan Award) and Count II (breach of fiduciary duty) of the Amended Complaint. ECF Nos. 48 and 52.
In light of the Court's recommendation that summary judgment should be granted in favor of the Plaintiffs/Employer Trustees as to Counts I and II of the Amended Complaint, it is recommended that the Partial Motion for Summary Judgment of the Union Trustees as to Counts I and II be denied, for the reasons set forth above.
B. Rule 11 Sanctions
In their Partial Motion for Summary Judgment, the Union Trustees also argue that the claims of the Employer Trustees are frivolous and vexatious such that the Union Trustees reserve the right to seek sanctions under Federal Rule of Civil Procedure 11(b)(2). ECF No. 48 ¶ 3. Based on the findings in the Report and Recommendation, it is further recommended that this request be denied as unwarranted and without merit.
E. CONCLUSION
For the reasons set forth herein, it is respectfully recommended that the Motion for Summary Judgment of the Employer Trustees, ECF No. 46, be granted as to Count I (action for enforcement of the Fagan Award) and Count II (breach of fiduciary duty for failure to comply with the Fagan Award) of the Amended Complaint, and denied without prejudice as to the counterclaim of the Union Trustees, pending final adjudication of the related federal case. It is further recommended that the Motion for Partial Summary Judgment of the Union Trustees, ECF No. 48, be denied.
In accordance with the Magistrate Judges Act, 28 U.S.C. § 636(b)(1), and Local Rule 72.D.2, the parties are permitted to file written objections in accordance with the schedule established in the docket entry reflecting the filing of this Report and Recommendation. Failure to timely file objections will waive the right to appeal. Brightwell v. Lehman, 637 F.3d 187, 193 n. 7 (3d Cir. 2011). Any party opposing objections may file their response to the objections within fourteen (14) days thereafter in accordance with Local Civil Rule 72.D.2.