Opinion
Civil Action No. 03-4187.
February 21, 2005
MEMORANDUM
I. Introduction
This case arises from Defendants' alleged failure to make contributions to the Plaintiffs' funds under the terms of a collective bargaining agreement, and specifically concerns the failure of the Defendants to make payments to employee benefit plans that fall within the ambit of the Employee Retirement Income Security Act of 1974 ("ERISA"). The specific Plaintiffs in this action are: Roofers Local 30 Combined Welfare Fund, Roofers Local 30 Combined Pension Fund, Roofers Local 30 Combined Vacation Fund, and Roofers Local 30 Combined Annuity Fund (collectively, the "ERISA Funds"); Roofers Local 30 Political Action and Education Funds; Composition Union Local No. 30 Apprenticeship Fund; Roofing Contractors Association Fund; and Local Union Number No. 30 of the United Union of Roofers, Waterproofers and Allied Workers (the "Union"). The Defendants are Lentz McGrane, Inc. ("LMI"), Coastal, Inc. ("Coastal"), Ric Lentz and William McGrane, Jr. II. Procedural History
Plaintiffs filed an Amended Complaint (Doc. No. 12) in this Court on December 16, 2003. LMI failed to enter an appearance and on February 12, 2004 a default judgment (Doc. No. 20) was entered against the company for failure to plead or otherwise defend. On April 22, 2004, an Order and Judgment was entered against LMI in the amount of $117,754.58 (Doc. No. 25). In May 2004 Plaintiffs received a payment of $55,000, the surety on a fringe benefit bond secured by LMI (see Pl's Ex. 9).
LMI filed for Chapter 7 bankruptcy protection on August 8, 2004 in the United States Bankruptcy Court for the Eastern District of Pennsylvania. It seems likely that the insolvency or dissolution of LMI explains its failure to enter an appearance in this matter. Plaintiffs sought to recover from Defendant Coastal on a theory of alter ego or successor liability vis-á-vis LMI (See Amended Complaint, Doc. No. 12), but dropped their claim against Coastal at trial.
Plaintiffs filed a motion for summary judgment on June 30, 2004 (Doc. No. 29). Due to defects in service, Defendant Lentz did not respond until August 31, 2004 (Doc. No. 39). Lentz's response (Doc. No. 42) was filed pro se in the form of an affidavit, but Lentz is now represented by counsel and, through counsel, Lentz filed a supplemental brief (Doc. No. 51). The Court held oral argument on the motion for summary judgment on January 13, 2005.
Defendant McGrane did not respond to the motion for summary judgment until October 8, 2004. On this date, McGrane filed a response in the form of a letter in which he claims that the motion for summary judgment was "premature" in light of the fact that the Plaintiffs have not completed efforts to recover LMI assets "embezzled" by Ric Lentz. On December 27, 2004, McGrane submitted a response by way of letter (Doc. No. 54) in which he asserted that both Lentz and his attorney have made knowing misrepresentations to the Court and in deposition testimony. However, because McGrane asserted no legal or factual arguments in opposition to Plaintiffs' motion for summary judgment, the Court entered summary judgment against McGrane in the amount of $139,933.50 (Doc. No. 58).
Because of factual issues, summary judgment was denied as to Lentz, and trial was held on February 10, 2005. The following are the Court's findings of fact and conclusions of law pursuant to Rule 52, F.R. Civ. P.
III. Jurisdiction and Legal Standard
This Court maintains jurisdiction in this matter under 28 U.S.C. § 1331, through the operation of various provisions of ERISA. The Court has subject matter and personal jurisdiction under 29 U.S.C. § 185. Additionally, 29 U.S.C. § 1132 provides that a civil action may be brought by the beneficiary of an ERISA plan "to recover benefits due to him under the terms of the plan" or "enforce his rights under the terms of the plan."
The ERISA provision pertaining to delinquent contributions provides that "[e]very employer who is obligated to make contributions to a multiemployer plan under the terms of the plan or under the terms of a collectively bargained agreement shall, to the extent not inconsistent with law, make such contributions in accordance with the terms and conditions of such plan or such agreement." 29 U.S.C. § 1145. Most importantly with respect to the case at bar,
[a]ny person who is a fiduciary with respect to [an ERISA] plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses resulting from each such breach. . . .29 U.S.C. § 1109(a). Fiduciary status attaches to a person "to the extent that he exercises any discretionary authority or discretionary control respecting management of [an ERISA plan] or exercises any authority or control respecting management or disposition of its assets[.]" 29 U.S.C. § 1002(21)(A).
IV. Facts A. Undisputed Facts
The following facts are undisputed: LMI, a roofing business, was incorporated in Pennsylvania in January 2001. The sole incorporators and shareholders were Defendant McGrane and his wife M. Elaine Syres (See Lentz Surreply, Doc. No. 42). Defendant Lentz was not an incorporator or a shareholder. His name was included in the business name for the purpose of generating business based on Lentz's reputation and professional contacts. (See Lentz Dep., Pl's Ex. 16 at p. 25). LMI was bound to a collective bargaining agreement ("labor contract") with the Union from January 2001 until April 2009. (See Labor Contract, Pl's Ex. 3 and McGrane Dep. at p. 18, Pl's Ex. 17). Under the terms of the labor contract, LMI was bound to the terms of the trust agreements of the ERISA Funds. (See Labor Contract, Pl's Ex. 3 at Arts. XV-XVIII). Included in the terms of these agreements was an obligation on the part of LMI to make fringe benefit contributions to the ERISA Funds on a monthly basis, commensurate with the amount of work performed by Union employees. Though the details of the payments are not clear in the pleadings, it is undisputed that LMI was delinquent in its payments to the ERISA Funds from April 2002 through July 2003.
The exhibits to which this Memorandum refers were submitted in connection with the briefing on Plaintiff's Motion for Summary Judgment (Doc. No. 29) and were not disputed. The Court will consider these undisputed facts as part of the trial evidence. The only exhibits submitted at trial were the transcripts of the depositions of Defendant Lentz.
McGrane has always been the president and controlling shareholder of LMI. He entered into and signed the labor contract with Plaintiffs. McGrane regularly signed fringe benefit checks payable to the ERISA Funds (See Pl's Ex. 12) and signed a payment bond on behalf of LMI (See Pl's Ex. 9).
Defendant Lentz was responsible for the day-to-day operations and management of LMI (See Lentz Dep., Pl's Ex. 16). He also regularly signed fringe benefit checks payable to the ERISA Funds (See Pl's Ex. 12).
B. Disputed Facts
Plaintiffs assert that Lentz held himself out to others as an officer of LMI during the delinquency period. Plaintiffs further assert that Lentz individually exercised discretionary control over the assets that were not properly remitted to the ERISA Funds. Defendant Lentz, however, strenuously disputes that he was ever an officer of LMI, and he denies that he ever had discretionary control over LMI assets (Lentz Affidavit Opposing S.J., Doc. No. 39). Lentz identified himself under signature on various documents as "partner", "president", "VP" and "principal" (See Pl's Ex. 21). However, Lentz asserts that these titles appeared only "for the purpose of expediting said documents." (Lentz Affidavit Opposing S.J., Doc. No. 39). Additionally, at a hearing on December 22, 2003, Lentz represented himself to this Court as a "secretary treasurer" of LMI. Lentz asserts that he only made this representation with permission of the owners of LMI, and that for all intents and purposes he was only an officer for one day. (See Lentz Dep. at p. 14, Pl's Ex. 16).
V. Discussion
In order to prevail on a theory of personal fiduciary liability under 29 U.S.C. § 1109(a), Plaintiffs must prove the following two elements:
1) That the unpaid contributions to the ERISA Funds constituted "plan assets" within the meaning 29 U.S.C. § 1002(21)(A).
2) That the individual defendants maintained fiduciary status under 29 U.S.C. § 1002(21)(A) with respect to those assets.
Both elements must be proven in turn; if the unpaid contributions are determined not to be plan assets, no liability can attach to the individual defendants.
A. Whether LMI's Unpaid Contributions to the ERISA Funds Should Be Considered Plan Assets Within the Meaning of 29 U.S.C. § 1002(21)(A)
The ERISA statute does not define what constitutes "plan assets" and courts, therefore, must look to the agreement that created the employee benefit plan to determine whether or not certain assets qualify as "plan assets" within the meaning of the statute. See Galgay v. Gangloff, 677 F. Supp. 296, 301 (MD. Pa. 1987), aff'd, 932 F.2d 959 (3d Cir. 1991). Courts strictly look to the language of the contract or trust agreement in determining whether unpaid contributions are plan assets under the statute. Id. In this case there is no dispute regarding the language of the labor contract, nor is there any dispute regarding the language of the trust agreements that created the ERISA Funds (see Pl's Ex. 4).
29 U.S.C. § 1002(21)(A) reads as follows:
Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a 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, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.
Plan asset determination generally turns on whether the contract or trust agreement explicitly states that unpaid contributions become "plan assets" as soon as they are due and owing. If a trust agreement does not explicitly designate unpaid contributions as "plan assets," courts are reluctant to so designate them. See PMTA Containerization Fund v. Rose, 1995 WL 461269 at *2 (E.D. Pa. 1995). In this case, there is no such explicit language but Plaintiffs nevertheless argue that the unpaid contributions became plan assets at the time the fringe benefit contributions accrued (See Pl's Memorandum in Supp. of S.J., pp. 13-17).
The Court holds the contributions are "plan assets." Although the language in the trust agreements does not expressly state that unpaid contributions become plan assets as soon as they are due and owing, the agreements nevertheless contain unambiguous language that gives rise to contractual obligations for payment of money due, and therefore supports the conclusion that unpaid contributions are "plan assets" under ERISA. The trust agreements that created the ERISA fund state, in relevant part:
Section 1.11: The term "Employer Contributions" shall mean payments made or to be made pursuant to an obligation to contribute arising under one or more collective bargaining (or related) agreements . . . Section 3.1(a): Employers shall make prompt contributions or payments to the Trust Fund . . . The Employers agree that all contributions shall constitute an absolute obligation to the Trust Fund . . . Section 3.2(a): The Trustees are hereby vested with all right, title and interest in and to such monies and all interest which may be accrued thereon . . . Section 7: No Employer, Union, employee or beneficiary shall have any right, title or interest in the Trust Fund.
(Pl's Ex. 4). As noted above, there is nothing in the agreement that explicitly addresses whether unpaid contributions become plan assets, but several courts have interpreted similar language to mean that unpaid contributions are "plan assets" within the meaning of ERISA. For example, in Galgay, the court emphasized that the funds "due and owing" were vested in the fund, making them plan assets, despite the fact that the trust agreement was silent on the issue of unpaid contributions. 677 F. Supp. 295 (M.D. Pa. 1987). In another case,Trs. of the Nat'l Elevator Indus. Pension, Health Benefit Educ. Funds v. Lutyk, this Court determined that unpaid contributions were likely plan assets where the trust agreement stated that the "Trust Fund shall consist of . . . such sums of money as shall be paid to [the plan] by the Employers. . . ." 140 F. Supp. 2d 407, 411 (E.D. Pa. 2001) (emphasis added). Here, the trust agreements likewise define "employer contributions" as "payments made or to be made pursuant to an obligation to contribute" (Pl's Ex. 4) (emphasis added). The trust agreements at issue in this case further state that "all contributions shall constitute an absolute obligation to the Trust Fund." Id. Based on the foregoing language, which contemplates that unpaid contributions would become vested assets of the ERISA funds, the Court concludes that unpaid contributions to the ERISA funds are "plan assets" within the meaning of ERISA. B. The Fiduciary Status of Defendant Lentz Vis-a-Vis The Unpaid Contributions to the ERISA Funds
Although multiple agreements created the various ERISA funds, it is undisputed that each of the agreements contain provisions identical to those referenced in this Memorandum.
The Court notes that counsel for Defendant Lentz conceded at oral argument money owed to the plan "is a plan asset, whether the plan ever gets it or not." (Mot. for Summ. J., Jan 13, 2005, Tr. at 6).
Under the statute, fiduciary status attaches to an individual "to the extent that he exercises any discretionary authority or discretionary control respecting management of [an ERISA plan] or exercises any authority or control respecting management or disposition of its assets[.]" 29 U.S.C. § 1002(21)(A). The Third Circuit has recognized a significant difference between the two clauses of the statute. Whereas "discretion is specified as a prerequisite to fiduciary status for a person managing an ERISA plan . . . the word `discretionary' is conspicuously absent when the text refers to assets." Board of Trustees of Bricklayers and Allied Craftsmen Local 6 of New Jersey Welfare Fund v. Wettlin Associates, Inc., 237 F.3d 270, 273 (3d Cir. 2001).
The determination of fiduciary relationships under ERISA does not turn on strict job titles or "formal trusteeship," but rather a fiduciary is defined in "functional terms of control and authority over the plan." Srein v. Frankford Trust Company, 323 F.3d 214, 220 (3d Cir. 2003) (quoting Mertens v. Hewitt Associates, 508 U.S. 248, 262 (1993)). Following this reasoning, the dispute over whether or not Lentz was or was not an officer is not germane to the question of whether or not he had fiduciary duties under the plan.
Lentz denies that he had either control or discretion over the disposition of LMI assets. Rather, he claims that he only made contributions (and signed checks) with the authorization of McGrane. Plaintiffs point to Lentz's deposition testimony to prove that Lentz enjoyed both the authority and control over ERISA Plan contributions, citing his duties with respect to writing checks, securing debt, and administering the ERISA plans.
VI. Findings from the Trial
The trial took place on February 10, 2005. Plaintiffs introduced deposition testimony of Defendant Lentz, tending to show by his own admissions that he had and exercised discretionary authority over Plan Assets.
Defendant Lentz testified on his own behalf and then Plaintiffs called Co-Defendant McGrane on rebuttal. Lentz's own testimony satisfies the above test. See also Pl's Memorandum in Supp. of S.J., pp. 17-20; Pl's Rep. Br. pp. 3-6; and Pl's Supp. Rep. Br. pp. 5-12) (citing portions of Defendant's deposition testimony that relate to Defendant's responsibilities and practices with respect to the ERISA funds). Although there are some significant differences between Lentz and McGrane as to what happened when they were both working at LMI, there is no need for the Court to resolve these issues of credibility because Defendant Lentz, by his own testimony, acknowledged significant discretionary authority and actions over plan assets that warrant the Court finding him liable.
Specifically, Lentz testified that he made the decisions to make contributions to the contribution fund for several years until LMI experienced financial difficulties. He also testified to numerous loans to Coastal, Inc. (originally named as a Defendant in this case but then dismissed by agreement of parties before the trial started), in which one of the owners was his son. These payments were characterized as "loans," but there were no promissory notes or other indicia of genuineness, and the Court finds that such transactions are inherently suspect and further finds that the expenditure of LMI funds, even assuming they were bona fide loans to Coastal or the receipt of loans from Coastal to LMI, were so undocumented that the inflow and outflow of funds admitted by Lentz in his testimony further supports the Court finding that Lentz had and exercised discretionary control over LMI funds. Lentz admitted that a number of these transactions with Coastal took place when there were deficiencies in the obligations of LMI to make contribution payments to the ERISA fund.
Lentz also admitted that he made payments out of LMI funds to himself, which he characterized as for payroll, but there were no indicia of genuineness, no testimony about the payment of taxes or any other indication that these payments were in the ordinary course of business.
From all the testimony, the Court finds that Lentz was in control of plan assets and had a fiduciary duty to make contribution payments to the fund, and breached that duty. The Court's conclusion is consistent with holdings of other courts within the Third Circuit. See Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226 (3d Cir. 1994); Galgay v. Gangloff, 677 F. Supp. 296, 301 (MD. Pa. 1987),aff'd, 932 F.2d 959 (3d Cir. 1991); PMTA Containerization Fund v. Rose, 1995 WL 461269 (E.D. Pa. 1995);
An appropriate Order follows.
ORDER
AND NOW, this 21st day of February, 2005, the Court finds that Plaintiffs have sustained their burden of proof as to Defendant Lentz, and the Court finds in favor of Plaintiffs and against Lentz on the issue of liability.Defendant Coastal, Inc. is dismissed as a party defendant.
Within seven (7) days Plaintiffs' counsel shall submit a form of Order setting forth the exact amounts which Plaintiffs assert are due and owing based upon this finding of liability against Defendant Lentz, and a form of Final Judgment. Defendant Lentz shall within seven (7) days advise the Court whether he objects to the specific form of Order and Judgment, and if so, file specific objections. If an objection is made, the Court will hold a telephonic or other hearing to resolve any disputes.