Source: https://law.justia.com/cases/federal/appellate-courts/F3/126/34/497872/
Timestamp: 2018-12-19 13:44:44
Document Index: 365520721

Matched Legal Cases: ['§ 1002', '§ 1002', '§ 1002', '§ 1144', '§ 2510', '§ 630']

21 Employee Benefits Cas. 1716,pens. Plan Guide (cch) P 23937tpatrick Lopresti, As Trustee of the Pension Fund of Localone, Amalgamated Lithographers of America, As Trustee of Thesickness & Accident Fund of Local One, Amalgamatedlithographers of America, and As President of Local One,amalgamated Lithographers of America, Plaintiff-appellant,richard Boesch; Marcos Bonilla; William Capone; Louischiacchiaro; John Churchill; Henry Christadoro; Josephcurrao; Joseph D'agostino; Johnny Gonzalez; Anthonygrotto; Dennis Larkin; John Lazarus; Robert Lepore;martin Mizrachi; Alfred Natale; Milton Nazario; Geraldpizzo; Joseph Ressa; Vincent Rice; Daniel Romano;leonard Sannicandro; Thomas Scaglione; Daniel Scavetta;anthony Scott; James Seaman; Anthony Wetzel; Plaintiffs, v. John Terwilliger; Donald L. Terwilliger, Iii, Defendants-appellees, 126 F.3d 34 (2d Cir. 1997) :: Justia
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21 Employee Benefits Cas. 1716,pens. Plan Guide (cch) P 23937tpatrick Lopresti, As Trustee of the Pension Fund of Localone, Amalgamated Lithographers of America, As Trustee of Thesickness & Accident Fund of Local One, Amalgamatedlithographers of America, and As President of Local One,amalgamated Lithographers of America, Plaintiff-appellant,richard Boesch; Marcos Bonilla; William Capone; Louischiacchiaro; John Churchill; Henry Christadoro; Josephcurrao; Joseph D'agostino; Johnny Gonzalez; Anthonygrotto; Dennis Larkin; John Lazarus; Robert Lepore;martin Mizrachi; Alfred Natale; Milton Nazario; Geraldpizzo; Joseph Ressa; Vincent Rice; Daniel Romano;leonard Sannicandro; Thomas Scaglione; Daniel Scavetta;anthony Scott; James Seaman; Anthony Wetzel; Plaintiffs, v. John Terwilliger; Donald L. Terwilliger, Iii, Defendants-appellees, 126 F.3d 34 (2d Cir. 1997)
U.S. Court of Appeals for the Second Circuit - 126 F.3d 34 (2d Cir. 1997)
Argued Aug. 7, 1997. Decided Sept. 12, 1997
Following a non-jury trial, the United States District Court for the Southern District of New York (Chin, J.) found that the Terwilligers were not fiduciaries within the meaning of section 3(21) (A) of ERISA, codified at 29 U.S.C. § 1002(21) (A), and thus could not be held personally liable under ERISA for breach of fiduciary duty. Primarily because the record did not show that the Terwilligers used the earmarked monies for themselves, the district court further held that the Trustee failed to establish a cause of action for conversion. Thus, finding no merit to any of the Trustee's claims, the district court entered judgment in favor of the Terwilligers, dismissing the complaint with prejudice. This appeal followed.
The Terwilligers both signed multiple checks which were drawn on a Company account, including checks which were forwarded to the Union. As the Terwilligers admitted, those deductions were not maintained in a separate account, however. In terms of who had responsibility for deciding which creditors were paid and when, the district court expressly found that although Donald "ha [d] a role in determining which bills to pay, ... he usually followed the advice of [the Company's vice president of finance]." A168. On the other hand, the district court found that John was "primarily a production person" in that " [h]e calculated the hours worked by employees and gave that information to the accounting department." Id. Significantly, unlike Donald, the district court expressly found that John "had no responsibility for determining which of the company's creditors would be paid or in what order." Id. (emphasis added). In light of the foregoing, the district court held that neither of the Terwilligers were fiduciaries as ERISA defines that term because " [t]hey did not exercise any control in the sense contemplated by [that statute] as fiduciaries." A171.
Before addressing the merits of these arguments, as the Trustee's reply brief makes clear, this Court must first consider the appropriate standard of review. Assuming the applicability of Fed. R. Civ. P. 52(a),6 the Terwilligers assert, among other things, that Judge Chin's holding that they are not fiduciaries under ERISA should be affirmed because his factual findings in that regard were not clearly erroneous. Challenging the Terwilligers' assumption as to the appropriate standard of review, the Trustee contends that whether the Terwilligers are deemed to be ERISA fiduciaries is a question of law, subject to de novo review. At most, the Trustee asserts that whether the Terwilligers are fiduciaries under ERISA is a mixed question of law and fact. In any event, the Trustee further contends that even if this Court employs the clearly erroneous standard of review, the district court's finding that the Terwilligers were not ERISA fiduciaries cannot be sustained under that less stringent standard of review.
A district court's findings of fact following a bench trial will be set aside on appeal only if those findings are clearly erroneous. FDIC v. Providence College, 115 F.3d 136, 140 (2d Cir. 1997) (citations omitted). Under the Supreme Court's oft-quoted formulation, "factual findings by the district court will not be upset unless [the Court of Appeals is] 'left with the definite and firm conviction that a mistake has been committed.' " Id. (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 542, 92 L. Ed. 746 (1948)). "The Supreme Court instructs that ' [i]f the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently.' " Donato v. Plainview-Old Bethpage Cent. School Dist., 96 F.3d 623, 634 (2d Cir. 1996), cert. denied, --- U.S. ----, 117 S. Ct. 1083, 137 L. Ed. 2d 218 (1997) (quoting Anderson v. Bessemer City, 470 U.S. 564, 573-74, 105 S. Ct. 1504, 1511-12, 84 L. Ed. 2d 518 (1985)). " 'However, the district court's application of th [e] facts to draw conclusions of law, including a finding of liability, is subject to de novo review.' " Providence College, 115 F.3d at 140 (quoting Travellers Int'l A.G. v. Trans World Airlines, 41 F.3d 1570, 1575 (2d Cir. 1994)). "So called mixed questions of law and fact are also reviewed de novo." Id.
This Court has not yet been squarely faced with the narrow issue of whether ERISA fiduciary status is strictly a factual issue subject to a clearly erroneous standard of review, a legal issue subject to de novo review, or a mixed question of law and fact, also subject to de novo review. Other Circuit Courts which have specifically addressed that issue have held, however, that " [t]he existence of a fiduciary relationship under ERISA, on the merits, is a mixed question of law and fact." See, e.g., Kramer v. Smith Barney, 80 F.3d 1080, 1083 n. 2 (5th Cir. 1996) (citing Reich v. Lancaster, 55 F.3d 1034, 1044-45 (5th Cir. 1995)) (other citation omitted). By the same token, where the facts are not in question, whether a party is an ERISA fiduciary "is purely a question of law." Kayes v. Pacific Lumber Co., 51 F.3d 1449, 1458 (9th Cir.), cert. denied, --- U.S. ----, 116 S. Ct. 301, 133 L. Ed. 2d 206 (1995); see also Libbey-Owens-Ford Co. v. Blue Cross & Blue Shield Mutual, 982 F.2d 1031, 1034 (6th Cir. 1993) (citation omitted) (because whether an administrator of a self-insured benefits plan is an ERISA fiduciary is a conclusion of law, it is subject to de novo review).
Here, the Trustee suggests that the district court made clearly erroneous factual findings in ascertaining the Terwilligers' fiduciary status under ERISA, but nowhere does he specifically identify any such findings. A careful review of the Trustee's briefs reveals that actually he is not challenging the district court's factual findings, but instead he is attacking the legal conclusion which the court drew from those facts--that is that the Terwilligers are not fiduciaries within the meaning of section 1002(21) (A) of ERISA. Because the Trustee disputes the legal conclusion reached by the district court here, and not the factual findings which formed the basis for that conclusion, de novo review is appropriate. Likewise, even though the parties did not consider the standard of review which governs the conversion claim, the Court finds that it too is subject to de novo review, because, again, the Trustee does not dispute the factual predicate for that claim. Instead, he disagrees with the district court's legal conclusion that the Terwilligers cannot be held liable under that theory.
As this Court has recognized, Congress intended ERISA's definition of fiduciary "to be broadly construed." Blatt v. Marshall & Lassman, 812 F.2d 810, 812 (2d Cir. 1987). "Unlike the common law definition under which fiduciary status is determined by virtue of the position a person holds, ERISA's definition is functional." Mason Tenders Dist. Council Pension Fund v. Messera, 958 F. Supp. 869, 881 (S.D.N.Y. 1997) (citing, inter alia, Mertens v. Hewitt Assocs., 508 U.S. 248, 262, 113 S. Ct. 2063, 2071-72, 124 L. Ed. 2d 161 (1993)). Section 1002(21) (A) of ERISA defines a fiduciary in several ways. In relevant part, that statute provides that a "person is a fiduciary with respect to a plan," and therefore subject to ERISA fiduciary duties, "to the extent" that he or she "exercises any authority or control respecting management or disposition of [plan] assets," or, "has any discretionary authority or discretionary responsibility in the administration of such plan." 29 U.S.C. § 1002(21) (A) (i) and (iii).
In the present case, primarily on the basis that the Terwilligers did not administer the subject Funds, the district court found that they did not meet the statutory definition of a fiduciary. By focusing on whether the Terwilligers were administrators of the Funds, however, the district court overlooked the fact that an individual also may be an ERISA fiduciary by, as just stated, "exercis [ing] any authority or control respecting management or disposition of [plan] assets." Id. (emphasis added). Apparently, Donald and his brother John were the only signatories on the Company's account, and Donald signed checks on that account, including checks payable to the Funds. Of equal if not more import, though, is that, as the district court found, Donald had "a role in determining which bills to pay," in that he decided which creditors were to be paid out of the Company's general account (which, during the relevant time frame, included employee Fund contributions), and when those creditors were to be paid. A168. Significantly, Donald is not challenging any of these factual findings on this appeal, and certainly the foregoing factual findings are plausible when the record is viewed as a whole. Consequently, this Court is convinced that Donald's commingling of plan assets with the Company's general assets, and his use of those plan assets to pay Company creditors, rather than forwarding the assets to the Funds means that he "exercise [d] ... authority or control respecting ... disposition of [plan] assets," and hence is a fiduciary for purposes of imposing personal liability under ERISA. See Yeseta v. Baima, 837 F.2d 380 (9th Cir. 1988) (an employee in charge of plan administration and who, at the direction of company principals, withdrew plan assets, and placed those assets in the company's account to pay "necessary operating expenses" held personally liable as a fiduciary under ERISA); Connors v. Paybra Mining Co., 807 F. Supp. 1242, 1246 (S.D.W. Va. 1992), appeal dis'd, 21 F.3d 421 (4th Cir. 1993) (company officers and directors exercised authority or control respecting management or disposition of plan assets, and thus were ERISA fiduciaries where they made "personal, conscious choices" to use withheld employee contributions to cover company expenses); Reich v. Cook, 94cv2069, slip op. at 10-11 (D. Conn. Mar. 24, 1997) (defendants fell within the ambit of section 1002(21) (A) where, even though other employees processed checks for their signature, they were the only signatories on the corporate account, and they "retained the authority to instruct those employees as to what checks to process and what monies were to be paid out [ ]").
With respect to his fiduciary status under ERISA, John Terwilliger stands in a different position than does his brother Donald. Even though he was authorized to sign checks on the Company's account and he had some general knowledge that deductions were made from employees' wages, as the district court found, he was "primarily" a "production" person with "no responsibility for determining which of the company's creditors would be paid or in what order [.]" A168. In light of that finding, which is amply supported by the record, this Court agrees with the district court that the record does not support a finding that John performed any of the functions enumerated in § 1002(21) (A) so as to render him personally liable for breach of fiduciary duty under ERISA. In contrast to his brother Donald, John Terwilliger did not exercise authority or control regarding the disposition of plan assets. Consequently, because John does not come within the statutory definition of ERISA, the district court correctly held that he is not personally liable thereunder for breach of fiduciary duty.
ERISA's preemption clause is "conspicuous for its breadth." FMC Corp. v. Holliday, 498 U.S. 52, 58, 111 S. Ct. 403, 407, 112 L. Ed. 2d 356 (1990); see also Romney v. Lin, 94 F.3d 74, 78 (2d Cir. 1996) ("The preemption language of ERISA ... is purposefully sweeping...."). Therefore, despite the fact that neither the district court nor the parties considered the possibility that ERISA may preempt the Trustee's state law conversion claim,7 this Court is compelled to do so.
29 U.S.C. § 1144(a) (emphasis added). Insofar as the Trustee is seeking to recover losses to the Funds based upon a common law theory of conversion, undoubtedly, ERISA preempts such a claim. See District 65, UAW v. Harper & Row, Publishers, Inc., 576 F. Supp. 1468, 1487 (S.D.N.Y. 1983) (ERISA preempted several common law claims, including one for conversion). This common law conversion claim to recover losses to the Funds is nothing more than an "alternative theory of recovery for conduct actionable under ERISA," and as such is preempted by ERISA. See Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 288 (2d Cir. 1992) (citations omitted). Accordingly, the Court affirms the district court's dismissal of the conversion claim, insofar as the Trustee is seeking to recover employee contributions which were not forwarded to the Funds, albeit it for reasons different than those provided by the district court. To the extent that the Trustee's conversion claim is premised upon the failure of the Terwilligers to tender to the Union the withheld dues, however, ERISA does not preempt that particular claim. That is so because, as noted earlier, admittedly the Union dues were not "plan assets" subject to ERISA. See 29 C.F.R. § 2510.3-102(a) (" [T]he assets of the plan include amounts (other than union dues) ... that a participant has withheld from his wages by an employer....").
Having determined that ERISA does not preempt the Trustee's common law conversion claim for the Union dues, the Court will next address the merits of that claim. "Conversion occurs when a defendant exercises unauthorized dominion over personal property in interference with a plaintiff's legal title or superior right of possession." Rolls-Royce Motor Cars, Inc. v. Schudroff, 929 F. Supp. 117, 124 (S.D.N.Y. 1996) (citing Bankers Trust Co. v. Cerrato, Sweeney, Cohn, Stahl & Vaccaro, 187 A.D.2d 384, 385, 590 N.Y.S.2d 201, 202 (1992)). " [I]t is well-settled that an action will lie under New York law for conversion of money where there is an obligation to return or otherwise treat in a particular manner the specific money in question." Vanderbilt Univ. v. Dipsters Corp., 84 Civ. 7215-CHS, 1986 WL 10471, at * 3 (S.D.N.Y. Sept. 17, 1986) (citation omitted). "The tort of conversion does not require defendant's knowledge that he is acting wrongfully, but merely an intent to exercise dominion or control over property in a manner inconsistent with the rights of another." Fashions Outlet of America, Inc. v. Maharaj, 88 Civ. 7231, 1991 WL 143421, at * 2 (S.D.N.Y. July 22, 1991) (internal quotations and citations omitted).
Furthermore, because " [i]t has long been established, ..., that a corporate officer who commits or participates in a tort, even if it is in the course of his duties on behalf of the corporation, may be held individually liable [,]" the district court mistakenly relied upon the fact that Donald was acting on behalf of the Company to exonerate him from liability for conversion. See Jami Marketing Servs., Inc. v. Howard, 1988 WL 46106, at * 3 (E.D.N.Y. April 26, 1988) (citations omitted).
Evidently in light of Romney v. Lin, 94 F.3d 74, 79-80 (2d Cir. 1996), reh'g denied, 105 F.3d 806 (2d Cir.), petition for cert. filed, 65 USLW 3728 (April 16, 1997), wherein this Court held that ERISA preempts a cause of action under BCL § 630, the Trustee withdrew his seventh cause of action brought pursuant to that statute. A158
That Rule provides, in relevant part, that in all actions tried without a jury, as was the present case, " [f]indings of fact, ..., shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge ... the credibility of the witnesses." Fed. R. Civ. P. 52(a)