Opinion ID: 855052
Heading Depth: 3
Heading Rank: 3

Heading: The Prior Action and Depletion of Reserves

Text: In 1993, LIHS, Anthony Macaluso (Finance Director of LIHS) and Paul Adams (LIHS employee formerly participating in the Plan) commenced a class action against - 6 - the Plan and its Trustees, seeking, inter alia, a refund of the LIHS Reserves (the Prior Action). At a meeting of the Board of Trustees on December 14, 1993, the Trustees discussed the fact that the Prior Action exposed the Plan to a contingent liability of approximately $500,000, the amount of damages sou ght by LIHS and its employees. At the very same board meeting, the Trustees decided to write off the Yonkers CAP delinquency as bad debt and pay the claims of Yonkers CAP employees using the Plan Reserves. Over the next several years, the Trustees depleted the Plan Reserves, notwithstanding the approximately $500,000 contingent liability it faced in the Prior Action. In 1995 alone, the Trustees expended $611,000 of the Plan Reserves by recording a loss of approximately $296,000 for the write-off of the Yonkers CAP delinquency plus interest receivable, and by paying more in claims and expenses relative to prior years. The Plan Reserves fell below $1 million for the first time in at least seven years. Despite the quickly declining reserves, however, the Trustees did not increase the contributions due from the - 7 - agencies but collected approximately the same amounts as in prior years. On June 30, 1998, Yonkers CAP and EOC Suffolk withdrew from the Plan, owing $107,496 plus interest and $9,000, respectively. The Plan ceased operations that year. 1 Between 1998 and March 2001, the Trustees depleted the Plan Reserves, setting aside only $50,000 for the $500,000 in contingent liability it faced in the Prior Action. They did not exercise their power, under section 3.2(j) of the Trust Agreement, to retain any funds or property subject to any dispute. In 2000, the district court entered judgment in the Prior Action, awarding LIHS and its employees $497,736 for the LIHS Reserves that should have been refunded, plus interest, attorneys' fees, and costs, for a total award of $802,831.57. The Plan satisfied only a portion of the judgment, leaving over $700,000 plus interest unpaid. 1 Although the district court found that the Plan had ceased operations in 1998, the record suggests that the Plan was never legally terminated. The district court declined to make a finding as to whether the Plan was legally terminated. - 8 -