Court Opinion

ID: 9004284
Source: CourtListenerOpinion
Date Created: 2022-11-27 13:19:59.180435+00
Date Added: 2024-06-11T17:11:14.589714
License: Public Domain

JON O. NEWMAN, Circuit Judge,
concurring in part and dissenting in part:
A demolition company (“Kaszycki”), hired to work on a construction site, failed to make pension fund contributions for a group of “off-the-books” Polish workers. Unfortunately, Kaszycki became insolvent and could not pay the contributions when the failure to pay was discovered. Understandably, the funds sought to collect from deeper pockets. They found two — a trustee of the funds and the owner of the site. The District Court imposed liability on both — on the trustee, on the theory that he breached a fiduciary duty, and on the owner, on the theory that it participated in the fiduciary’s breach. The majority properly declines to uphold such liability on the present record, but nonetheless remands for further proceedings at which such liability may again be imposed. Because I believe the record irrefutably establishes that neither the trustee nor the owner has any liability on these theories for the damages suffered by the funds, I respectfully dissent.
In its effort to maintain the viability of the plaintiff’s claims that the trustee breached a fiduciary duty and that the owner participated in that breach, the majority makes three rulings with which I disagree. These concern the sufficiency of the evidence to permit a finding that (1) the funds’ relied on the trustee’s breach, (2) the trustee’s breach caused damages to the funds, and (3) the owner knew of the trustee’s status as a fiduciary.
1. The funds’ reliance on the trustee’s breach. The majority recognizes that a required element of plaintiff’s claim is proof that the funds relied on Senyshyn’s falsification of the shop steward reports. The District Court endeavored to find reliance from the testimony of the administrator of the funds, Joe Dektarovich. The majority charitably characterizes his testi*289mony as “in some respects equivocal” but ultimately adequate to support a finding of reliance. In fact, Dektarovich’s testimony conclusively establishes that the shop steward reports were not relied upon to determine fund contributions.
Dektarovich testified that he looked only at Kaszycki’s payroll report to determine the amount of contributions owed (A 1365) and specifically stated that he did not look at the shop steward reports while the Kasz-ycki job was in progress (A 1366). Judge Stewart found reliance on the theory that the shop steward report “was used by the fund administrators as a cross-check on the employer’s weekly payroll reports.” (A 2287). For this statement, he cites to Tr. 1907. But on that page, Dektarovich says only that the fund requires shop steward reports so that a cross-check can be made; there is no testimony that he used them for that purpose during the Kaszycki job.
Possibly, a general practice of crosschecking might support a finding of reliance, but not in this case for two reasons. First, Dektarovich was specifically asked whether he remembered ever making a comparison of the shop steward reports for the Kaszycki job with the employer reports, and he replied, “I didn’t.” (A 1367). Second, the reports themselves show a name on the shop steward reports that does not appear on the payroll reports. The shop steward report for March 24 shows “P. Klapko, number 5398” (A 1761), who is not on the payroll report (A 1797). Whatever the general practice may have been, the evidence is clear that the shop steward reports were not relied on for contributions during the three weeks of the Kaszycki job during which Senyshyn submitted false reports.
2. Proof of damages caused by the fraud. Even if Senyshyn could be found liable for a fraudulent breach of a fiduciary duty, I disagree that the plaintiff has presented sufficient evidence to permit a finding that his breach caused the funds any damages. Senyshyn has no duty to pay the contributions out of his pocket simply because he is a trustee and is aware that the contractor is not paying. Even the plaintiff does not make such an extravagant claim. Instead, his theory of Senysh-yn’s liability for damages is that Senyshyn failed to inform the trustees of the correct amounts owed, that if he had done so, the trustees, armed with knowledge of those amounts, would have made demand on Trump, and that Trump would have paid those amounts. It is a wonderful theory. But there is no evidence to support all of its necessary steps, and the District Judge did not purport to make the requisite findings. The majority acknowledges that the District Judge has not found a causal connection between Senyshyn’s fraud and the funds’ losses. Nevertheless, the majority concludes that the plaintiff has presented what the majority calls “prima facie damages” and remands to afford the defendants an opportunity to rebut that showing, after which the trier will be permitted to find that the plaintiff has sustained his burden of proving an amount of damages caused by the fraud. In my view, the plaintiff has totally failed to prove that the fraud caused damages to the funds.
It is fundamental that proof of damages is part of a plaintiff’s burden, including the burden to prove that the damages claimed to have been suffered were caused by the wrong claimed to have been committed. The law tilts somewhat generously in favor of wronged plaintiffs by casting upon them only a burden to prove the fact that the wrong caused damages and a reasonable basis for estimating the damages alleged to have been suffered; the risk of error in calculation is thereby placed on the wrongdoer. See Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 263-66, 66 S.Ct. 574, 579-80, 90 L.Ed. 652 (1946); Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 562-67, 51 S.Ct. 248, 250-52, 75 L.Ed. 544 (1931). In a few carefully defined circumstances, where the difficulty of determining the amount of damages has been created by the wrongdoer’s conduct, the law is even more generous and places on a plaintiff only a burden to show that the wrong caused damages that are some undefined part of a larger sum, with the burden on the defendant to prove the portion of the larger sum that is *290not compensable damages. See, e.g., 5 William A. Fratcher, Scott on Trusts § 515, at 609 (4th ed. 1989) (burden-shifting rule applies to claim against trustee for commingling funds). But there is no basis for applying a similar burden-shifting rule to any of the defendants in this case. They did not merge proper gains with improper gains obtained at the plaintiff’s expense. If liable at all, it is only because Senysh-yn’s conduct caused the funds not to receive contributions they would otherwise have received. But it was part of the plaintiff’s case to prove the causal link between the conduct and the loss. The plaintiff did not prove an essential part of his causation theory — that the Trump defendants, having volunteered to pay $68,000 to avoid work stoppages, would have stepped up and paid an additional $325,415 if asked to do so. There is no finding that they would have done so, as the majority recognizes, and, in my view, the evidence, even without the rebuttal opportunity now afforded the defendants, would not permit such a finding.
3. The owner’s knowledge of the trustee’s status as a fiduciary. Even if there is liability on the part of Senyshyn and even if the evidence could support a finding that his fraud caused damages to the funds, I disagree that the Trump defendants may be held liable for participation in the trustee’s breach. The majority recognizes that the knowledge necessary to hold the Trump defendants liable as participants in Senysh-yn’s breach of his fiduciary duties is “knowledge as to [Senyshyn’s] status as a fiduciary and knowledge that [Senyshyn’s] conduct contravenes a fiduciary duty.” To show knowledge of Senyshyn’s status as a fiduciary, the majority says: “Macari’s deposition indicates he knew Senyshyn was president of Local 95. It is also plain that the trial judge who presided over this 16-day bench trial could properly infer and in this case did infer, in light of the entire record, that Macari knew Senyshyn was a trustee who owed a fiduciary obligation to the funds.” I doubt that Judge Stewart made the inference that Macari knew that Senyshyn was a trustee. Clearly, he made no such finding explicitly. His sole finding as to Macari’s knowledge of Senyshyn’s roles is the following: “Macari knew that Senyshyn was the union president as well as the shop steward.” 774 F.Supp. at 809.
In any event, I see no basis whatever for such an inference. Presidents of local unions are not necessarily trustees of pension funds. Sometimes they are, and sometimes they are not. Nothing in this record provided Macari with a basis for thinking that just because he knew that Senyshyn was the president of Local 95, he must also have known that Senyshyn was a trustee of the funds.1 Thus, the exposure of the Trump defendants based on Macari’s knowing participation in Senyshyn’s breach of fiduciary duties rests on the unsupportable inference, attributed to the fact-finder by the majority of this Court, that Macari knew that Senyshyn was a trustee. I would therefore enter judgment for the Trump defendants at this point on the claim of aiding a breach of fiduciary duty for lack of any evidence that their agent Macari knew that Senyshyn was a trustee. At a minimum, the remand should oblige the District Judge, as fact-finder, to decide explicitly whether to draw the inference *291that Macari knew Senyshyn was a trustee and, if he makes such an inference, to set forth the facts supporting the inference so that we may review the reasonableness of drawing that inference.
4. The derivative claim against Trump as employer. I agree with the majority that the derivative claim against Trump as employer should be allowed to proceed because the failure to make demand on the funds was excusable as futile. But in returning this claim to the District Court, I caution that it is by no means certain that Trump can be found liable as an employer. This does not appear to be a case like NLRB v. Browning-Ferris Industries of Pa., Inc., 691 F.2d 1117 (3d Cir.1982), where the entity deemed to have become the employer set essential terms and conditions of employment. An owner faced with a job shut-down at his site must be free to advance funds to a defaulting contractor to meet the payroll without automatically thereby being deemed to have become an employer with full liability for all of the contractor’s liabilities to the employees.
For all of these reasons, I respectfully dissent from the remand of the claims against Senyshyn for breach of fiduciary duty and against Trump for participation in that breach. I concur in all other aspects of the Court’s judgment.

. The majority attributes to Judge Stewart a finding that Macari had actual knowledge that Senyshyn was a trustee and does not rely on constructive knowledge of this crucial fact. I agree that constructive knowledge would not suffice, even if the facts supported it. The law of trusts goes far in imposing liability on third parties when they aid trustees in conduct that the third party knew or should have known was a breach of a fiduciary duty. See George G. Bogert & George T. Bogert, The Law of Trusts and Trustees § 901, at 259 (2d ed. 1982). But that principle refers to constructive knowledge of the breaching conduct, not constructive knowledge of the status of the trustee. It is one thing to say that a person who knows he is dealing with,a trustee must exercise care and make reasonable inquiry, and can be liable for aiding a breach of trust, where he knows or should know that the trustee is acting in breach of a fiduciary duty. But it is entirely different to say to all third parties that they are under some duty of inquiry as to the status of all persons with whom they deal and will be held liable for aiding the fiduciary duty breaches of a trustee whenever they should have known that the person was a trustee. The treatise cited by the majority, 76 Am.Jur.2d, Trusts § 373, at 370 (1992), observes this distinction when it says that persons who knowingly deal with trustees are under a duty of inquiry as to the conduct of the trustees. See also Leake v. Watson, 58 Conn. 332, 352, 20 A. 343, 344, (1890).