Court Opinion

ID: 1037977
Source: CourtListenerOpinion
Date Created: 2013-08-21 00:01:07.431291+00
Date Added: 2024-06-11T12:46:57.356742
License: Public Domain

FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT

 CARPENTERS PENSION TRUST FUND                       No. 11-16133
 FOR NORTHERN CALIFORNIA,
                        Appellant,                     D.C. No.
                                                    3:10-cv-00756-
                       v.                                 RS

 MICHAEL GORDON MOXLEY, AKA
 MGM’s Cabinet Installation Services,                  OPINION
                            Appellee.

         Appeal from the United States District Court
            for the Northern District of California
          Richard Seeborg, District Judge, Presiding

                    Argued and Submitted
          June 13, 2013—San Francisco, California

                      Filed August 20, 2013

  Before: Mary M. Schroeder and Consuelo M. Callahan,
 Circuit Judges, and Sarah S. Vance, Chief District Judge.*

                  Opinion by Judge Schroeder

  *
    The Honorable Sarah S. Vance, Chief United States District Judge for
the Eastern District of Louisiana, sitting by designation.
2      CARPENTERS PENSION TRUST FUND V. MOXLEY

                           SUMMARY**

                            Bankruptcy

    The panel affirmed the district court’s order affirming the
judgment of the bankruptcy court in an adversary proceeding
regarding the dischargeability in bankruptcy of a construction
industry contractor’s “withdrawal liability” to a pension fund
following the expiration of the collective bargaining
agreement under which the fund was administered.

    Distinguishing Stern v. Marshall, 131 S. Ct. 2594 (2011),
the panel held that the bankruptcy court had jurisdiction to
adjudicate the dischargeability of the pension fund’s claim
against the contractor because a dischargeability
determination is central to federal bankruptcy proceedings
and therefore constitutes a public rights dispute that a
bankruptcy court may decide.

    The contractor was subject to withdrawal liability under
the Employee Retirement Income Security Act because he
continued doing work covered by the collective bargaining
agreement after it expired. The panel held that this debt was
dischargeable because it did not qualify as a debt created via
defalcation by a fiduciary under 11 U.S.C. § 523(a)(4). The
panel concluded that the contractor was not a fiduciary of the
fund pursuant to ERISA because he had nothing to do with
the fund’s administration or investment policy and did not
exercise control respecting disposition of its assets. The
panel held that the fund’s assets did not include the unpaid

  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
      CARPENTERS PENSION TRUST FUND V. MOXLEY                3

withdrawal liability. It reasoned that the withdrawal liability
was a statutory obligation, and was different from unpaid
contributions arising from contractual obligations under the
collective bargaining agreement. The panel held that the
contractor’s failure to challenge the withdrawal liability
amount in arbitration did not act as a waiver of his right to
discharge the debt.

                         COUNSEL

Christian L. Raisner (argued), Emily P. Rich, Roberta D.
Perkins, Weinberg, Roger & Rosenfeld, Alameda, California,
for Appellant.

Wayne A. Silver (argued), Sunnyvale, California; R. Kenneth
Bauer, Law Offices of R. Kenneth Bauer, Walnut Creek,
California, for Appellee.

                         OPINION

SCHROEDER, Circuit Judge:

                    INTRODUCTION

    When contractors in the construction industry stop
working under the terms of a collective bargaining
agreement, but continue in business, they cannot simply stop
making payments to the pension fund administered under that
agreement. Pursuant to the Employee Retirement Income
Security Act (“ERISA”), they are liable to the fund in the
amount determined necessary to ensure payment of benefits
to employees whose rights have vested. 29 U.S.C. §§ 1381,
4     CARPENTERS PENSION TRUST FUND V. MOXLEY

1391. The issue in this appeal is whether that “withdrawal
liability” is dischargeable in bankruptcy. The answer requires
some analysis of possible differences between withdrawal
liability and liability for delinquent contributions, but we
ultimately agree with the result reached by both the
bankruptcy court and the district court that the debt is
dischargeable. The pension fund cannot establish that the
debtor is a fiduciary with respect to money it owes as
withdrawal liability.

                     BACKGROUND

    The debtor is Michael G. Moxley, who did business as
MGM’s Cabinet Installation Service. In 1999 he became a
signatory to the multiemployer bargaining agreement entitled
“The 46 Northern California Counties Carpenter’s Master
Agreement of Northern California,” (the “Agreement”). He
was required under the Agreement to make contributions to
the Carpenters Pension Trust Fund for Northern California
(the “Fund”). When the Agreement expired in June 2004, he
was no longer a signatory to a collective bargaining
agreement. He stopped making payments to the Fund, but
continued doing carpentry work in the Bay Area.

    In March of 2005 the Fund notified Moxley that because
he was still doing work covered by the Agreement, he was
subject to withdrawal liability pursuant to 29 U.S.C. § 1381.
That amount had been determined to be $172,045 and for
purposes of this appeal is not disputed. The Fund filed suit in
United States District Court for the Northern District of
California, but proceedings there were stayed when Moxley
filed for bankruptcy.
      CARPENTERS PENSION TRUST FUND V. MOXLEY                 5

    In the bankruptcy court, Moxley sought a discharge of his
debt to the Fund, and the Fund filed a complaint under
11 U.S.C. § 523(c) to prevent discharge. The Fund sought to
establish that the debt qualified as one created via defalcation
by a fiduciary under § 523(a)(4). It provides that a
bankruptcy discharge “does not discharge an individual
debtor from any debt . . . for fraud or defalcation while acting
in a fiduciary capacity . . . .” Id.

    The Fund’s position was that because it is a trust fund,
and those who administer, own, or control assets of a trust
fund are fiduciaries, Moxley was a fiduciary for funds in his
control representing the amount of withdrawal liability that
he should pay to the Fund. In order to prevent the discharge,
the Fund therefore had to establish both that Moxley was
acting in a fiduciary capacity with respect to the money he
had not paid to the Fund, and that the failure to pay
constituted “defalcation” within the meaning of the Code.
We need not reach the issue of defalcation, because we
determine Moxley was not a fiduciary.

     In trying to establish that Moxley was a fiduciary under
the Bankruptcy Code, the Fund faces a number of hurdles, the
first, of course, is having to show that Moxley was a fiduciary
of the Fund pursuant to ERISA. Fiduciaries under ERISA are
defined as entities who manage a plan, give investment
advice to a plan, or control assets of a plan. ERISA provides
in 29 U.S.C. § 1002(21)(A) that a fiduciary is one who:

       [1] 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, [2] renders investment advice for
6     CARPENTERS PENSION TRUST FUND V. MOXLEY

       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 [3] has any
       discretionary authority or discretionary
       responsibility in the administration of such
       plan.

    Since Moxley has had nothing to do with the
administration or investment policy of the plan, the only
conceivable part of the definition that might apply is one who
“exercises . . . control respecting . . . disposition of [the
Fund’s] assets.” Id. The Fund therefore argued in the
bankruptcy court that its “assets” include money that is owed
to the Fund, and that Moxley has exercised control over that
money so as to become a fiduciary.

    The problem with this simple proposition is that money
that is owed to the Fund is not in the Fund, and is therefore
not yet a Fund “asset.” That is what this court held in Cline
v. Indus. Maint. Eng’g & Contracting Co., 200 F.3d 1223
(9th Cir. 2000). There, we dealt with a claim brought by
employees against their employers, alleging that the
employers’ failure to contribute adequately to the employee
benefit plan constituted a prohibited transaction under
ERISA. While we rejected the contention that the employers
had failed to contribute adequately to the plan, we also said
that the claim failed for the independent reason that unpaid
funds are not plan assets because they have not yet been paid.
Id. at 1234. “Until the employer pays the employer
contributions over to the plan, the contributions do not
become plan assets over which fiduciaries of the plan have a
fiduciary obligation.” Id.
      CARPENTERS PENSION TRUST FUND V. MOXLEY                 7

    Thus, the bankruptcy court in this case, relying on Cline
and our earlier opinion in Collins v. Pension & Ins. Comm. of
S. Cal. Rock Products & Ready Mixed Concrete Ass’ns,
144 F.3d 1279 (9th Cir. 1998), held that Moxley was not a
fiduciary with respect to the debt he owed the Fund. It said
that the Fund’s theory conflicted with Cline, Collins, and
“numerous cases . . . holding that persons owing contributions
are not automatically ERISA fiduciaries.”

    In its appeal to the district court, therefore, the Fund
argued that money a contractor owed to the Fund as a result
of the bargaining agreement could be considered an asset of
the Fund if the agreement itself so provided. The Fund
contended this agreement did, and pointed to the Article of
the Agreement establishing the Fund and the employers’
obligations to it. In relevant part, the Agreement defined the
Fund as consisting of “all Contributions required by the
Collective Bargaining Agreement . . . to be made for the
establishment and maintenance of the Pension Plan . . . .”

     The Fund contended that Moxley’s debt to the Fund was
in the nature of “contributions required . . . to be made,” and,
for that reason, was within the Agreement’s definition of plan
assets. This would make Moxley a fiduciary by virtue of his
control over those assets. See Trustees of S. Cal Pipe Trades
Health & Welfare Trust Fund v. Temecula Mech., Inc.,
438 F. Supp. 2d 1156, 1163 (C.D. Cal. 2006) (concluding that
unpaid contributions, though generally not plan assets, could
be made plan assets by contract between the employer and the
union).

    Moxley pointed out, however, that under the Fund’s
theory he became a fiduciary only because he did not make
the payment. This court has held that where a statute creates
8     CARPENTERS PENSION TRUST FUND V. MOXLEY

a fiduciary relationship, as the Fund contends ERISA does
here, that fiduciary relationship will not be recognized for the
purposes of § 523(a)(4) if the claimed fiduciary relationship
resulted from the wrongdoing that created the debt. In re
Hemmeter, 242 F.3d 1186, 1190 (9th Cir. 2001). The
fiduciary status has to be in existence before the debt was
owed. Id. (the fiduciary obligations must exist “prior to the
alleged wrongdoing.”). The district court agreed that under
the Fund’s theory, Moxley’s own wrongdoing, i.e., his failure
to pay, created the asserted fiduciary relationship. Relying on
Hemmeter, the district court affirmed the bankruptcy court.

    The district court also rejected the Fund’s contention that
Moxley had waived his right to discharge the debt in
bankruptcy by failing to contest the debt in arbitration.
ERISA requires that all disputes over withdrawal liability be
resolved by arbitration. Teamsters Pension Trust Fund-Bd.
of Trustees of W. Conference v. Allyn Transp. Co., 832 F.2d
502, 504 (9th Cir. 1987). The district court ruled that this
was not a dispute over the existence of the liability, but an
issue of discharge governed by § 523(a)(4). The court
rejected the Fund’s contention that the ERISA arbitration
provision can override the Bankruptcy Code.

    In this appeal, the Fund contends that Moxley is a
fiduciary of the Fund because he controlled money that he
owed to the Fund for withdrawal liability, which his
agreement with the union recognized as an asset of the Fund.
The Fund also reasserts its argument that Moxley’s failure to
contest the withdrawal liability in arbitration resulted in a
waiver of his right to seek a discharge in bankruptcy. Moxley
raises a threshold jurisdictional argument that Article III of
the Constitution prohibits the bankruptcy court from
adjudicating the Fund’s claim, so we turn to that first.
      CARPENTERS PENSION TRUST FUND V. MOXLEY                9

                       DISCUSSION

I. The Bankruptcy Court Had Jurisdiction to Adjudicate
   the Dischargeability of the Fund’s Claim Against
   Moxley

    After the district court’s decision in this case, the
Supreme Court decided Stern v. Marshall, 131 S. Ct. 2594,
2611 (2011), holding that a bankruptcy court could not
adjudicate a counterclaim for tortious interference because a
bankruptcy court is not an Article III court and the
counterclaim did not involve “public rights.” Bankruptcy
judges, because they do not have the tenure and salary
protections of Article III, may not exercise the judicial power
of the United States, except in cases involving public rights.
Id. at 2609–11. Public rights are identified as those rights
closely related to a federal government function. Id. at 2613.

    Moxley therefore asserts a threshold objection to the
bankruptcy court’s jurisdiction to decide dischargeability in
this case because he claims it has no connection to any
federal function. The contention is without substance,
because the dischargeability determination is central to
federal bankruptcy proceedings. Cent. Va. Cmty. Coll. v.
Katz, 546 U.S. 356, 363–64 (2006). The dischargeability
determination is necessarily resolved during the process of
allowing or disallowing claims against the estate, and
therefore constitutes a public rights dispute that the
bankruptcy court may decide. See In re Bellingham Ins.
Agency, Inc., 702 F.3d 553, 564–65 (9th Cir. 2012)
(concluding that public rights disputes in bankruptcy are
those that “necessarily ha[ve] to be resolved in the course of
the claims-allowance process”); see also In re Global
Technovations Inc., 694 F.3d 705, 721–22 (6th Cir. 2012)
10    CARPENTERS PENSION TRUST FUND V. MOXLEY

(bankruptcy court has jurisdiction over disputes that must be
resolved before ruling on proof of claim).

II. Moxley Is Not a Fiduciary of the Fund Because the
    Unpaid Withdrawal Liability Is Not an Asset of the
    Fund

    The district court held that Moxley was not a fiduciary
under § 523(a)(4) with respect to money he owes as
withdrawal liability, because the Bankruptcy Code requires
a fiduciary relationship to exist before the bad act of
nonpayment, rather than as a result of it. See Hemmeter,
242 F.3d at 1190. In this court, the Fund makes a more
creative argument. It contends Moxley did not become a
fiduciary as a result of his failure to pay this debt, but instead
has been a fiduciary with respect to all the contributions he
was ever required to pay in to the Fund, including withdrawal
liability.

    This contention is grounded in the language of the
Agreement defining the plan assets to include “all
contributions required . . . to be made” to the Fund. There is
some district court and bankruptcy court authority supporting
the proposition that an employer is a fiduciary under the
Bankruptcy Code with respect to unpaid contributions, where
the collective bargaining agreement includes unpaid
contributions as plan assets. See Bos v. Bd. of Trustees of
Carpenters Health & Welfare Trust Fund for California, No.
2:12-CV-02026-MCE, 2013 WL 943520, at *3 n.6 (E.D. Cal.
Mar. 11, 2013) (citing Hemmeter, 242 F.3d at 1190); In re
O’Quinn, 374 B.R. 171, 181–82 (Bankr. M.D.N.C. 2007).
According to these cases, it is ERISA and the provision of the
particular collective bargaining agreement, and not the
contractor’s nonpayment of the debt, that are responsible for
      CARPENTERS PENSION TRUST FUND V. MOXLEY                11

a fiduciary relationship. If the agreement creates the
obligation to pay contributions and defines plan assets to
include the unpaid contributions, then ERISA makes the
person who controls those plan assets a fiduciary. Section
523(a)(4) prevents discharge from a “debt . . . while acting in
a fiduciary capacity.” As the court in O’Quinn stated, “It is
the obligations of the fiduciary, however, as opposed to the
debt, that must preexist the alleged wrongdoing. In the
Section 523(a)(4) context, a context in which one party’s
claim is grounded in the other’s wrongdoing, the debt will
always arise at the time of the wrongdoing.” O’Quinn, 374
B.R. at 182 (emphasis in original).

   Relying on these cases involving the obligation to make
contributions, the Fund makes a persuasive case that, given
the provisions of this agreement, unpaid contributions
required by the Agreement can be considered plan assets.
Here, however, we do not have to decide the question of
whether unpaid contributions are plan assets. This is because
we do not deal with unpaid contributions arising from
contractual obligations.

    This case involves withdrawal liability under ERISA that
is imposed because the employer no longer has a contractual
obligation to contribute. This obligation is statutory. ERISA
recognizes that contributions, on the other hand, are
contractual obligations that ERISA enforces, but does not
create. See Sw. Adm’rs, Inc. v. Rozay’s Transfer, 791 F.2d
769, 773 (9th Cir. 1986) (“For an employer to be obligated to
make employee benefit contributions to a trust fund, there
must exist a binding collective bargaining agreement.”).

   For an employer, like Moxley, in the building and
construction industry, withdrawal liability does not arise until
12    CARPENTERS PENSION TRUST FUND V. MOXLEY

the “employer ceases to have an obligation to contribute
under the plan,” and the employer “continues to perform
work in the jurisdiction of the collective bargaining
agreement of the type for which contributions were
previously required.” 29 U.S.C. § 1383(b). Because
withdrawal liability does not arise until the employer ceases
to have an obligation to contribute to the plan, it cannot be
considered an unpaid contribution under the collective
bargaining agreement.

    Withdrawal liability is based on the recognition that, even
though the employer no longer has a contractual obligation to
pay, there may be employees whose rights have vested and
whom the plan must pay. “When an employer withdraws
from [] a plan, the plan remains liable to the employees who
have vested pension rights, though it no longer can look to the
employer to contribute additional funds to cover these
obligations.” Chi. Truck Drivers, Helpers & Warehouse
Workers Union (Indep.) Pension Fund v. CPC Logistics, Inc.,
698 F.3d 346, 347–49 (7th Cir. 2012) (describing withdrawal
liability and how it is calculated). Withdrawal liability acts
as an “exit price equal to [the employer’s] pro rata share of
the pension plan’s funding shortfall.” Id. at 347.

    As a result, an employer who has made all of the required
contributions before leaving the agreement may still have a
withdrawal liability. “Even when, upon an employer’s
withdrawal, that employer and every other participating
employer has made every contribution that ERISA required
of them, the plan may nonetheless be underfunded, resulting
in withdrawal liability for the departing employer.” In re CD
Realty Partners, 205 B.R. 651, 658 n.8 (Bankr. D. Mass.
1997). In sum, withdrawal liability is imposed by ERISA to
account for the pension fund’s needs going forward, and
      CARPENTERS PENSION TRUST FUND V. MOXLEY              13

therefore is distinct from the contributions required to be
made by the plan agreements.

    The Fund points to § 1451(b) of ERISA that establishes
the same procedural framework for recovering delinquent
contributions and unpaid withdrawal liability. The Fund
contends that unpaid contributions and withdrawal liability
are thus to be treated as substantively the same. This
contention is incorrect.

   The provision at issue reads:

       In any action under this section to compel an
       employer to pay withdrawal liability, any
       failure of the employer to make any
       withdrawal liability payment within the time
       prescribed shall be treated in the same manner
       as a delinquent contribution (within the
       meaning of section 1145 of this title).

29 U.S.C. § 1451(b). This provision means only that the
venue, statute of limitations, and right to receive costs and
expenses in actions to enforce withdrawal liability are the
same as those applicable to actions to collect delinquent plan
contributions. See Trs. of Amalgagmated Ins. Fund v.
Geltman Indus., Inc., 784 F.2d 926, 931–32 (9th Cir. 1986)
(explaining that the attorney’s fees provision applies to
actions to recover contributions under 29 U.S.C. § 1145 and
therefore also applies to “actions to collect unpaid employer
withdrawal liabilities”). It does not mean that they are
otherwise similar obligations. One obligation is created by
statute, the other by contract.
14     CARPENTERS PENSION TRUST FUND V. MOXLEY

    Accordingly, even if we assume that unpaid contributions
can be considered assets of the Fund under the particular
provisions of this agreement, and non-dischargeable, the
withdrawal liability is not an unpaid contribution. We
therefore agree with the conclusion of both the bankruptcy
and district court that this withdrawal liability is
dischargeable.

III.    Moxley’s Failure to Challenge the Withdrawal
        Liability Amount in Arbitration Did Not Act as a
        Waiver of His Right to Discharge the Debt

    The Fund continues to assert its position, rejected by the
district court, that Moxley waived his right to a discharge of
his withdrawal liability because he failed to challenge the
amount or existence of the liability in arbitration. The
Multiemployer Pension Plan Amendments Acts, 29 U.S.C.
§ 1401(a)(1), states that all disputes over withdrawal liability
must be arbitrated, Allyn Transp. Co., 832 F.2d at 504, and
the Fund claims that an employer cannot seek a discharge of
a debt for withdrawal liability, if the employer failed to
dispute the withdrawal liability in arbitration.

    The arbitration provision of ERISA expressly applies
where an employer contests the existence or the amount of an
alleged liability. 29 U.S.C. § 1401. Moxley does not here
dispute the amount or existence of the withdrawal liability.
He has invoked the provisions of the Bankruptcy Code to
discharge existing obligations and receive a “fresh start.”
Cent. Va. Cmty. Coll., 546 U.S. at 364. The district court
correctly held that this case is governed by the
dischargeability provisions of the Bankruptcy Code.
11 U.S.C. § 523.
      CARPENTERS PENSION TRUST FUND V. MOXLEY           15

                     CONCLUSION

   The district court’s order affirming the judgment of the
bankruptcy court is AFFIRMED.