L.I. Head Start Child Development Services, Inc. v. Economic Opportunity Commission of Nassau County, Inc. , 710 F.3d 57 ( 2013 )

12-2082-cv
L.I. Head Start Child Dev. Servs., Inc. v. Econ. Opportunity Comm'n of Nassau Cnty., Inc.
U NITED S TATES C OURT OF A PPEALS
FOR THE S ECOND C IRCUIT
August Term 2012
(Argued: December 19, 2012 Decided: March 13, 2013)
Docket No. 12-2082-cv
________________________
L.I. H EAD S TART C HILD D EVELOPMENT S ERVICES , I NC ., P AUL A DAMS ,
derivatively on behalf of Community Action Agencies
Insurance Group and as class representative of all other
persons similarly situated,
Plaintiffs-Appellees,
v.
E CONOMIC O PPORTUNITY C OMMISSION OF N ASSAU C OUNTY , I NC ., E CONOMIC
O PPORTUNITY C OUNCIL OF S UFFOLK , I NC ., Y ONKERS C OMMUNITY A CTION P ROGRAM ,
I NC ., J OHN L. K EARSE , S TELLA B. K EARSE , Representative of the
Estate of John L. Kearse,
Defendants-Appellants. *
________________________
Before:
C ALABRESI , L YNCH , and C HIN , Circuit Judges.
*
The Clerk of Court is directed to amend the official
caption to conform to the above.
Appeal from a judgment of the United States
District Court for the Eastern District of New York (Spatt,
J.), awarding damages against defendants-appellants
pursuant to the Employee Retirement Income Security Act, 29
U.S.C. § 1001 et seq., for breaching their duties as
fiduciaries of an employee welfare benefits plan.
AFFIRMED.
____________________________
ALEXANDER A. MIUCCIO (Gregory J.
Spaun, on the brief), Welby,
Brady & Greenbatt, LLP, White
Plains, New York, for
Plaintiffs-Appellees.
MARK GOIDELL, Law Office of Mark E.
Goidell, Amityville, New York,
for Defendants-Appellants.
____________________________
CHIN, Circuit Judge:
In 2000, in a prior lawsuit, the district court
entered judgment in the amount of $497,736, plus interest,
attorneys' fees, and costs, against Community Action
Agencies Insurance Group ("CAAIG" or the "Plan"), a welfare
benefits plan for employees of not-for-profit antipoverty
- 2 -
agencies, and its trustees. The judgment was entered in
favor of one of the participating agencies, plaintiff -
appellee L.I. Head Start Child Development Services, Inc.
("LIHS"), on account of CAAIG's failure to refund reserves
that had been set aside for LIHS after LIHS withdrew from
the Plan.
In the present case, LIHS and Paul Adams,
derivatively on behalf of CAAIG and as representative of a
class of LIHS employees who were Plan participants, sued
the administrators of CAAIG, contending that they breached
their fiduciary duties to CAAIG under the Employee
Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001et seq., by failing to ensure that CAAIG had sufficient
assets with which to satisfy the judgment. Following a
bench trial, the district court agreed and entered judgment
against the Plan administrators. The administrators
appeal. We affirm.
- 3 -
STATEMENT OF THE CASE
A. The Facts
1. CAAIG
CAAIG was established as an ERISA welfare benefits
plan for the purpose of providing "sickness, accident,
life, disability and other welfare benefits" for the
employees of not-for-profit antipoverty agencies. At all
relevant times, the participating employers consisted of
Economic Opportunity Commission of Nassau County, Inc.
("EOC Nassau"), Economic Opportunity Council of Suffolk,
Inc. ("EOC Suffolk"), Yonkers Community Action Program,
Inc. ("Yonkers CAP"), and LIHS.
Pursuant to a trust agreement dated October 4,
1983 (the "Trust Agreement"), the CAAIG Trust Fund (the
"Trust") was established to effectuate the purposes of the
Plan. Section 2 of the Trust Agreement provided that the
participating agencies had authority to administer the
Plan. The agencies delegated their authority to their
respective chief executive officers, who were to act as
trustees (the "Trustees") upon the direction of the
agencies.
- 4 -
In exercising their powers and duties, section 3.4
of the Trust Agreement required the Trustees to act "solely
in the interest of the plan participants and other persons
entitled to benefits [thereunder]," for the exclusive
purpose of "providing benefits to participants" and
"defraying reasonable expenses of administering the Trust,"
and "[w]ith the care, skill, prudence, and diligence" of a
prudent person in like circumstances.
2. Employer Contributions and The Reserves
The Trust Agreement required the participating
agencies to "make the necessary contributions to provide
the benefits expected to become payable under this Trust."
According to the CAAIG Health Coverage Plan, the failure of
any participating agency to "submit the appropriate premium
charge within the grace period of 30 days shall cause
coverage for all claims to cease from that month forward."
To ensure the financial integrity of the Plan, the Trustees
maintained approximately $1 million in reserves (the "Plan
Reserves"), which funds were "for [the] security of the
plan and could not be distributed to any member while the
plan was in existence."
- 5 -
At some point, Yonkers CAP and EOC Suffolk began
experiencing difficulty paying their Plan contributions.
By 1990, Yonkers CAP owed approximately $100,000 in
arrears. Although the Trustees initially terminated
Yonkers CAP's participation in the Plan, they reinstated
Yonkers CAP on assurances that it would pay d own its
overdue contributions. After reinstatement, however,
Yonkers CAP failed to pay down the contributions in
arrears. Similarly, in 1990, EOC Suffolk owed the Plan
approximately $38,000 in arrears, but the Trustees
permitted it to remain in the Plan and pay down its
delinquency on an "as possible" basis.
On September 1, 1992, LIHS withdrew from the Plan
and requested the immediate return of the portion of Plan
Reserves attributable to its past contributions (the "LIHS
Reserves"). The Trustees refused to refund the LIHS
Reserves.
3. The Prior Action and Depletion of Reserves
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 -
B. Proceedings Below
On December 13, 2000, LIHS and Adams commenced the
present action, principally asserting claims that EOC
Nassau, EOC Suffolk, Yonkers CAP, and John Kearse, Chief
Executive Officer of EOC Nassau (collectively, the
"Administrators"), breached their fiduciary duties in
violation of ERISA §§ 404(a) and 409(a). In the claims
relevant to this appeal, LIHS and the Class alleged that
the Administrators breached their fiduciary duties by: (1)
diverting the LIHS Reserves to pay the Plan's claims and
expenses (the "Diversion Claim"), (2) failing to adequately
fund the Plan through contributions from the agencies (the
"Underfunding Claim"), and (3) failing to collect overdue
contributions from EOC Suffolk (the "EOC Suffolk
Delinquency Claim"). 2
The district court conducted a bench trial on a
number of days during the period 2004 to 2007 and issued a
2
Although the EOC Suffolk Delinquency Claim was
initially asserted as a claim under ERISA § 406, which
proscribes certain prohibited transactions, the basis for this
appeal is the district court's conclusion that the
Administrators breached their fiduciary duties in violation of
ERISA § 404(a).
- 9 -
series of decisions between 2008 and 2012. 3 The district
court held that, as a preliminary matter, LIHS and the
Class were not collaterally estopped from bringing their
claims because the defendant-agencies were not parties in
the Prior Action, but that certain findings of fact it had
made in the Prior Action would be binding as "law of the
case." See L.I. Head Start Child Dev. Servs., Inc. v.
Econ. Opportunity Comm'n of Nassau Cnty., Inc., 558 F.
Supp. 2d 378, 406-08 (E.D.N.Y. 2008). The district court
dismissed a number of claims as untimely under the
applicable statute of limitations, ERISA § 413, but found
the Diversion Claim, Underfunding Claim, and the EOC
Suffolk Delinquency Claim timely. See id. at 391-406. It
held that LIHS and the Class had standing to sue under
ERISA §§ 502(a)(2) and 515, and that the Administrators
3
The Administrators' notice of appeal indicates the
appeal is from the "final judgment entered in this action on the
25th day of April, 2012, and from each part thereof," which
implemented the district court's Memoranda of Decision and
Orders entered October 20, 2011 and April 24, 2012, awarding
damages and attorneys' fees to LIHS and the Class. In light of
Rule 3(c)(4) of the Federal Rules of Appellate Procedure and the
issues raised on appeal, we construe this appeal as also being
taken from the district court's Memoranda of Decision and Orders
entered June 3, 2008, July 8, 2009, May 28, 2010, October 20,
2011, and April 24, 2012.
- 10 -
were fiduciaries within the meaning of ERISA, and thus,
subject to liability. See L.I. Head Start Child Dev.
Servs., Inc. v. Econ. Opportunity Comm'n of Nassau Cnty. ,
Inc., 634 F. Supp. 2d 290, 298-99 (E.D.N.Y. 2009).
Proceeding to the merits of the three claims it
found timely, first, the district court dismissed the
Diversion Claim. It reasoned that the Trustees, in
refusing to refund the LIHS Reserves, reasonably relied on
two trust amendments dated October 6, 1983 and August 7,
1986, which provided that the voluntary withdrawal or
termination of any member of the Plan shall result in
forfeiture of all monetary participation in the Trust and
that the Plan Reserves must remain in the Trust to be used
or distributed for Trust purposes. See id. at 308-10. The
district court held that while the trust amendments were
held void in the Prior Action, this ruling in 2000 could
not have informed the Trustees' reliance on the amendments
in the 1990s when they refused to refund the LIHS Reserves.
See id.Second, the district court found that the
Administrators breached their duties as to the Underfunding
- 11 -
Claim, i.e., that the agencies failed to make the necessary
contributions to adequately fund the Plan, and the
Administrators, as fiduciaries, failed to enforce the
agencies' contractual obligations to make the
contributions. See id. at 311-12.
Third, the district court found the Administrators
liable for the EOC Suffolk Delinquency Claim, concluding,
inter alia, that the Administrators breached their
fiduciary duties by failing to collect the delinquency and
permitting EOC Suffolk to remain in the Plan. See id. at
313.
On the parties' subsequent cross-motions for
reconsideration, the district court reaffirmed its previous
rulings, except to acknowledge that it had erred in relying
in part on ERISA § 515 to conclude that the plaintiffs had
standing. See L.I. Head Start Child Dev. Servs., Inc. v.
Econ. Opportunity Comm'n of Nassau Cnty., Inc., No. 00 Civ.
7394, 2010 WL 8816299, at *8 (E.D.N.Y. May 28 , 2010). The
district court nevertheless upheld its previous conclusion
that plaintiffs had standing pursuant to § 502(a)(2), an
independent basis for standing. See id. at *11.
- 12 -
After a full damages hearing, the district court
ordered the Administrators to pay $832,945, allocated among
the defendant-agencies, plus prejudgment interest. 4 See
L.I. Head Start Child Dev. Servs., Inc. v. Econ.
Opportunity Comm'n of Nassau Cnty., Inc., 820 F. Supp. 2d
410, 427-28 (E.D.N.Y. 2011). In determining the damages
amount, the district court relied on the testimony of
plaintiffs' expert witness, Anthony Macaluso, and accepted
his assumptions and methodology as reliable. See id. at
419, 427. Lastly, the district court awarded $490,807.53
in attorneys' fees to the plaintiffs. See L.I. Head Start
Child Dev. Servs., Inc. v. Econ. Opportunity Comm'n of
Nassau Cnty., Inc., 865 F. Supp. 2d 284, 297-98 (E.D.N.Y.
2012).
This appeal followed.
DISCUSSION
On appeal, the Administrators principally argue
that: (1) LIHS and the Class lack standing under ERISA
4
Although the district court held that the Estate of
John Kearse was liable for damages attributable to Kearse, it
did not specify how much of the total damages amount should be
allocated to him.
- 13 -
§ 502(a)(2); (2) the claims are time-barred under ERISA
§ 413; (3) the agencies are not fiduciaries under ERISA
§ 3(21)(A); and (4) the Administrators did not breach their
fiduciary duties under ERISA § 409(a). We review the
district court's findings of fact after a bench trial for
clear error and its conclusions of law de novo. See United
States v. Coppola, 85 F.3d 1015, 1019 (2d Cir. 1996).
A. Standing
1. Applicable Law
ERISA § 502(a)(2) confers standing on "a
participant, beneficiary or fiduciary" to seek relief under
ERISA § 409. 29 U.S.C. § 1132(a)(2). ERISA § 409(a) in
turn provides:
Any person who is a fiduciary with respect to
a 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 to the plan resulting
from each such breach.
29 U.S.C. § 1109.
"[C]laims [pursuant to § 409(a)] may not be made
for individual relief, but instead are 'brought in a
representative capacity on behalf of the plan.'" Coan v.
- 14 -
Kaufman, 457 F.3d 250, 257 (2d Cir. 2006) (quoting Mass.
Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142 n.9
(1985)). Standing is conferred upon certain classes of
plaintiffs whose "common interest . . . is in the financial
integrity of the plan" to seek remedies against the "misuse
of plan assets." Russell, 473 U.S. at 142 & n.9. "[T]he
basic standing issue is whether the plaintiff is within the
zone of interests ERISA was intended to protect." Mullins
v. Pfizer, Inc., 23 F.3d 663, 668 (2d Cir. 1994) (citation
and internal quotation marks omitted) (emphasis in
original).
A "participant" within the meaning of § 502(a)(2)
is "any employee or former employee of an employer, . . .
who is or may become eligible to receive a benefit of any
type from an employee benefit plan." 29 U.S.C. § 1002(7).
"[T]he term participant is naturally read to mean either
employees in, or reasonably expected to be in, currently
covered employment, or former employees . . . who have a
colorable claim to vested benefits." Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 117 (1989) (citations
and internal quotation marks omitted). For a claimant to
- 15 -
establish that he or she "may become eligible" for
benefits, the claimant "must have a colorable claim that
[ ] he or she will prevail in a suit for benefits." Id.The existence of standing is a question of law we
review de novo. Cent. States Se. & Sw. Areas Health &
Welfare Fund v. Merck-Medco Managed Care, L.L.C., 433 F.3d
181, 197 (2d Cir. 2005); Shain v. Ellison, 356 F.3d 211,
214 (2d Cir. 2004) (citation omitted).
2. Application
First, the Administrators argue that the
plaintiffs' claims are not derivative in nature because the
relief they seek -- recoupment of losses to the Plan, which
may ultimately be used to satisfy the judgment in the Prior
Action -- does not inure to the Plan. We disagree.
The district court found that LIHS and the Class
were asserting claims in a derivative capacity for the
benefit of the Plan as a whole. In their verified
consolidated amended complaint, the plaintiffs sought
recoupment of funds the Trustees should have collected to
keep the Plan financially solvent after paying its claims
and expenses. LIHS and the Class asserted these claims on
- 16 -
the Plan's behalf, and prayed for relief inuring to the
Plan. This relief, of course, surely would have benefitted
the Plan. It is of no moment that recovery inuring to the
Plan may ultimately benefit particular participants. See
LaRue v. DeWolff, Boberg & Assocs., Inc. 552 U.S. 248, 256
(2008) (ERISA § 502(a)(2) authorizes "recovery for
fiduciary breaches that impair the value of plan assets in
a participant's individual account"); accord Pfahler v.
Nat'l Latex Prods. Co., 517 F.3d 816, 826 (6th Cir. 2007)
("[T]he fact that damages awarded to the Plan may provide
plaintiffs with an indirect benefit, the payment of their
claims, does not convert their derivative suit into an
action for individual relief.").
Second, the Administrators argue that the members
of the Class lack standing because they were seeking only a
refund of past contributions rather than asserting a "claim
for benefits." The argument fails, however, because the
Class is not asserting a "claim for benefits" under ERISA
§ 502(a)(1)(B), but rather, a claim for recovery of "losses
to the plan" caused by the fiduciaries' breach of du ties
under ERISA §§ 502(a)(2) and 409(a). See LaRue, 552 U.S.
- 17 -
at 259 (Roberts, C.J., concurring) (distinguishing a "claim
for benefits" under § 502(a)(1)(B) from a claim for breach
of fiduciary duty under § 502(a)(2)). "Benefits" as used
to define "participants" is not limited to plan benefits
but encompasses "a benefit of any type." 29 U.S.C.
§ 1002(7). Furthermore, ERISA §§ 502(a)(2) and 409(a)
require a fiduciary who breaches his duties "to make good
to [the] plan any losses to the plan resulting from [the]
breach, and to restore to such plan any profits [made by
the fiduciary through use of plan assets]." Id. § 1109(a).
Thus, the Class members are "participants."
Section 502(a)(2) confers standing on a
"participant" to seek relief under § 409(a). Id.
§ 1132(a)(2). Because the Class members are employees of
LIHS entitled to receive "a benefit of any type" from the
Plan, they are "participants" with standing under
§ 502(a)(2).
As to LIHS, the Administrators argue that it lacks
standing because it is no longer a fiduciary of the Plan.
There is no dispute that LIHS was a fiduciary during its
participation in the Plan; rather, the Administrators argue
- 18 -
that LIHS lost its fiduciary status by withdrawing from the
Plan.
The Administrators rely on Chemung Canal Trust Co.
v. Sovran Bank/Maryland, 939 F.2d 12, 14-15 (2d Cir. 1991),
for the proposition that a former fiduciary lacks standing
under ERISA § 502(a). The circumstances in Chemung,
however, are distinguishable. There, we held that a former
fiduciary -- whose interests were adverse to those of the
plan -- lacked standing where it "no longer [had] an
interest in protecting a plan to which it [was] now a
complete stranger." Chemung, 939 F.2d at 15. Here, far
from being a complete stranger to the Plan, the district
court found that LIHS had a continuing interest in
protecting the Plan assets, which consisted in part of the
funds LIHS had contributed to the Plan during its
participation. Accordingly, we conclude that LIHS has
standing under ERISA § 502(a) as a fiduciary of the Plan.
Our conclusion is consistent with ERISA's remedial scheme
designed to "remove jurisdictional and procedural obstacles
which in the past appear to have hampered effective
- 19 -
enforcement of fiduciary responsibilities." Mullins, 23
F.3d at 668 (quotation omitted). 5
B. Statute of Limitations
1. Applicable Law
ERISA § 413 provides the applicable statute of
limitations for claims asserting a breach of fiduciary
duty:
the earlier of -- (1) six years after (A) the
date of the last action which constituted a
part of the breach or violation, or . . . (2)
three years after the earliest date on which
the plaintiff had actual knowledge of the
breach or violation.
29 U.S.C. § 1113.
Under the three-year limitations period in
subsection (2), actual knowledge is strictly construed and
constructive knowledge will not suffice. See Caputo v.
Pfizer, Inc., 267 F.3d 181, 193-94 (2d Cir. 2001). "While
5
We also reject the Administrators' argument that LIHS
and the Class lack constitutional standing because they have not
suffered an injury-in-fact. See Lujan v. Defenders of Wildlife,
504 U.S. 555, 560-61 (1992) (constitutional standing requires
injury-in-fact, causation, and redressability). As discussed,
LIHS and the Class have asserted their claims in a derivative
capacity, to recover for injuries to the Plan caused by the
Administrators' breach of their fiduciary duties. This is
injury-in-fact sufficient for constitutional standing.
- 20 -
a plaintiff need not have knowledge of the relevant law, he
must have knowledge of all facts necessary to constitute a
claim." Id. at 193 (internal citation omitted).
"We review the question of the application of the
relevant statute of limitations . . . de novo." Novella v.
Westchester Cnty., 661 F.3d 128, 143 (2d Cir. 2011).
2. Application
a. Underfunding Claim
The Administrators argue that the Underfunding
Claim is time-barred under the three-year limitations
period because counsel for LIHS and the Class, Alexander
Miuccio, acquired actual knowledge of the relevant facts
sometime between 1993 and 1996 during discovery in the
Prior Action, and such knowledge should be attributed to
his clients based on their agency relationship.
The district court held that any actual knowledge
Miuccio possessed should not be imputed to LIHS and the
Class because this is a class action, relying on Stieberger
v. Sullivan, 738 F. Supp. 716 (S.D.N.Y. 1990), Schwab v.
Philip Morris USA, Inc., No 04 Civ. 1945, 2005 WL 2467766(E.D.N.Y. Oct. 6, 2005), and Crimi v. PAS Industries, Inc.,
- 21 -
No. 93 Civ. 6394, 1995 WL 272580 (S.D.N.Y. May 9, 1995),
where knowledge was not imputed in class action contexts
because the large number of plaintiffs often rendered the
attorney-client relationship more tenuous.
We conclude that the three-year limitations period
does not bar the Underfunding Claim. Even assuming
Miuccio's knowledge can be attributed to LIHS and the
Class, he did not possess all of the material facts giving
rise to the Underfunding Claim. Miuccio conceded before
the district court that during the Prior Action, he
acquired knowledge of the facts giving rise to the
Diversion Claim and the EOC Suffolk Delinquency Claim. As
to the Underfunding Claim, however, he repeatedly
represented that it was not until sometime between 2000 and
2004 -- when he received the Plan's financial statements
during supplemental proceedings following entry of judgment
in the Prior Action -- that he learned that the Plan was
underfunded and the Administrators could have breached
their fiduciary duties in this regard. The district court
accepted this representation, and we have no basis to
- 22 -
second-guess that decision. 6 This action was commenced on
December 13, 2000, within three years of the time Miuccio
learned all of the material facts giving rise to the
Underfunding Claim. 7
Alternatively, the Administrators argue that the
Underfunding Claim is barred by the six-year limitations
period because it accrued on September 1, 1992, when LIHS
learned that the LIHS Reserves would not be refunded. The
district court, however, found that the Administrators'
failure to adequately fund the Plan occur red between 1995
and March 2001, a finding that is not clearly erroneous.
The district court reasonably distinguished between the
earlier failure to refund money contributed by LIHS and the
6
The district court referred to "diversion" in
discussing both the Diversion Claim and the Underfunding Claim.
Based on our reading of the district court's decisions and the
record as a whole, we understand Miuccio's representations to
relate only to the Underfunding Claim.
7
The Administrators offer an alternate basis for the
application of the three-year bar. They argue that Macaluso and
Phyllis Simmons (former Chief Executive Officer of LIHS) knew
sometime between 1993 and 1995 that the Plan would not refund
the LIHS Reserves, and that is when the limitations period began
to run. This argument fails. The fact purportedly known by
Macaluso and Simmons relate to the Diversion Claim, not to the
Underfunding Claim. Moreover, any knowledge possessed by
Macaluso in the Prior Action cannot be attributed to the Class
in this case, of which he is not a member.
- 23 -
subsequent, distinct decision not to increase contributions
to the fund to maintain adequate reserves to cover the
contingent liability represented by LIHS's Prior Action to
recover that money.
The six-year limitations period runs from the
"date of the last action which constituted a part of the
breach." 29 U.S.C. § 1113(1)(A) (emphasis added). Because
the last action constituting the Administrators' failure to
adequately fund the Plan occurred in March 2001, and this
action was commenced on December 13, 2000, the Underfunding
Claim is timely.
b. EOC Suffolk Delinquency Claim
The Administrators argue that the EOC Suffolk
Delinquency Claim accrued in 1990, and that, therefore, it
is barred by the six-year limitations period. As discussed
above, the six-year limitations period runs from the date
of the last action constituting a part of the breach. The
district court found that the Trustees' failure to collect
EOC Suffolk's delinquency continued until at least August
31, 1996, when $9,000 still remained on the Plan's books.
- 24 -
Thus, the EOC Suffolk Delinquency Claim is timely under the
six-year limitations period. 8
C. Fiduciary Status of the Agencies
1. Applicable Law
ERISA § 3(21)(A) imposes fiduciary status on (1)
"those who exercise discretionary authority [with regard to
the management or administration of the plan], regardless
of whether such authority was ever granted" and (2) those
"who have actually been granted discretionary authority,
regardless of whether such authority is ever exercised."
Bouboulis v. Transp. Workers Union of Am. , 442 F.3d 55, 63
(2d Cir. 2006) (citation and internal quotation marks
omitted).
We review de novo the question of whether a party
is an ERISA fiduciary. See LoPresti v. Terwilliger, 126
F.3d 34, 39 (2d Cir. 1997).
8
As the Administrators have not developed an argument
in their briefs that the EOC Suffolk Delinquency Claim is barred
by the three-year limitations period, they have waived any such
argument. See Tolbert v. Queens Coll., 242 F.3d 58, 75 (2d Cir.
2001). Furthermore, we do not reach the Administrators'
argument that the Diversion Claim is time-barred because we
affirm the district court's judgment on the basis of the
Underfunding and EOC Suffolk Delinquency Claims, as explained
below.
- 25 -
2. Application
The agencies argue that they are not fiduciaries
of the Plan because the Trust Agreement assigned only
ministerial functions to them and assigned discretionary
authority to the Trustees. We reject this argument. The
district court correctly found that th e Trust Agreement
granted the agencies ultimate discretionary authority to
administer the Plan. Section 2 of the Trust Agreement
expressly provided that the Plan would be administered by
the agencies, and that the Trustees would act upon the
agencies' direction. Even if the agencies never exercised
this discretion, the Trust Agreement's grant of actual
discretionary authority to them is sufficient to find that
the agencies are fiduciaries under ERISA § 3(21)(A). See
Bouboulis, 442 F.3d at 63.
D. Breach of Fiduciary Duty
1. Applicable Law
ERISA § 409(a) imposes liability on a fiduciary
who breaches his duties under ERISA § 404(a)(1), which
requires a fiduciary to "discharge his duties with respect
to a plan solely in the interest of the participants an d
- 26 -
beneficiaries and (a) for the exclusive purpose of: (i)
providing benefits to participants and their beneficiaries;
and (ii) defraying reasonable expenses of administering the
plan" with the care, skill, prudence, and diligence of a
prudent man under similar circumstances and in accordance
with the documents and instruments governing the plan. 29
U.S.C. § 1104(a). Under ERISA § 405, a fiduciary "shall be
liable for a breach of fiduciary responsibility of another
fiduciary with respect to the same plan" in certain
circumstances. Id. § 1105. The Administrators concede
that the breach of a contractual obligation in the Plan
documents constitutes a breach of their fiduciary duties
under § 404(a)(1).
2. Application
We conclude that the Administrators breached their
fiduciary duties with respect to the Underfunding Claim.
The district court found that the Plan was underfunded.
This finding of fact was not clearly erroneous. The
district court found that beginning in 1995, the Plan
lacked sufficient funds to pay its claims and expenses.
The court accepted expert testimony from Macaluso that the
- 27 -
judgment in the Prior Action was an administrative expense
of the Plan. This testimony accurately reflected the law.
A plan must pay its legitimate liabilities. Payments to
satisfy judgments for expenses incurred or debts owed by
the Plan are appropriately considered administrative
expenses of the Plan. The district court thus correctly
rejected the Administrators' contention that all of the
Plan's claims and expenses were paid throughout its
existence, and instead, concluded that the Administrators
were obliged to increase the contributions due from the
agencies.
Section 3.1 of the Trust Agreement required the
agencies to "make the necessary contributions to provide
the benefits expected to become payable under this Trust."
The agencies failed to make the necessary contributions due
to the Plan, thus violating the Trust Agreement.
Similarly, the Administrators had a fiduciary duty to
ensure that the agencies satisfied their payment
obligations to the Plan. See Diduck v. Kaszycki & Sons
Contractors, Inc., 874 F.2d 912, 916 (2d Cir. 1989) ("Under
ERISA, trustees have a fiduciary duty to 'act to ensure
- 28 -
that a plan receives all funds to which it is entitle d, so
that those funds can be used on behalf of participants and
beneficiaries.'" (quoting Cent. States, Se. & Sw. Areas
Pension Fund v. Cent. Transp., Inc., 472 U.S. 559, 571
(1985))); Frulla v. CRA Holdings, Inc., 596 F. Supp. 2d
275, 284 (D. Conn. 2009) (fiduciaries have an obligation to
ensure that plan sponsors satisfy their funding obligations
to the plan).
Third, the Administrators violated section 3.4 of
the Trust Agreement, which required them to discharge their
fiduciary duties for the exclusive purpose of providing
benefits and "defraying reasonable expenses of
administering the Trust." During the same board meeting at
which they discussed the $500,000 contingent liability in
the Prior Action, the Trustees decided to use the Plan
Reserves to write off a delinquency owed by Yonkers CAP and
to pay the claims of Yonkers CAP employees. Although the
Trustees had the power to "retain any funds or property
subject to any dispute," as provided in section 3.2( j) of
the Trust Agreement, they failed to retain enough funds to
- 29 -
cover the $500,000 contingent liability, setting aside only
$50,000.
Between 1993, when the Prior Action was commenced,
and March 2001, the Trustees dissipated the Plan Reserves,
allowing the reserves to fall below $1 million and
eventually depleting the funds altogether. At the same
time, they failed to increase the contributions payable by
the agencies to replenish the Plan Reserves and ensure the
financial integrity of the Plan. Even following the entry
of the $802,831.57 judgment in the Prior Action, the
agencies failed to fulfill their obligation to make
adequate contributions, and the Administrators as
fiduciaries failed to enforce the agencies' contractual
obligations to do so, consequently leaving the judgment
unsatisfied. Accordingly, we agree with the district court
that the Administrators breached their fiduciary duties
with respect to the Underfunding Claim. 9
9
The Administrators argue that Kearse's liability
should be limited to breaches having occurred prior to October
5, 1996, when he resigned as trustee. We reject this argument,
as the parties jointly stipulated that Kearse continued acting
as a fiduciary until June 30, 1998, by which time the fiduciary
breaches had already occurred. The parties also stipulated that
the Trustees had delegated their authority to administer and
- 30 -
As to the EOC Suffolk Delinquency Claim, the
district court found that the CAAIG Health Coverage Plan
required the Administrators to terminate EOC Suffolk from
the Plan upon its failure to pay its contributions within
the thirty-day grace period. The district court concluded
that by failing to collect the delinquency and permitting
EOC Suffolk to remain in the Plan without meeting its
obligations, the Administrators breached their duties to
administer the Plan in accordance with plan documents and
act solely in the interest of plan participants and
beneficiaries. We agree. See Diduck, 874 F.2d at 916(trustees have a fiduciary duty to ensure that a plan
receives all funds to which it is entitled).
The Administrators argue that the Trustees could
have reasonably concluded that the cost of pursuing the
$9,000 debt was not justified. They offer no evidence,
however, that the Trustees actually weighed the costs and
benefits of pursuing the debt and made a considered
decision in this regard. Moreover, they cannot dispute
operate the Plan to Kearse. Therefore, Kearse's liability is
not limited, and we affirm the district court's judgment in that
regard.
- 31 -
that the Trustees could have terminated EOC Suff olk from
the Plan before it elected to withdraw in 1998, thereby
mitigating further losses to the Plan caused by EOC
Suffolk's participation. Accordingly, we conclude that the
Administrators breached their fiduciary duties with respect
to the EOC Suffolk Delinquency Claim. 10
CONCLUSION
Accordingly, the judgment of the district court is
AFFIRMED.
10
As to the Administrators' remaining arguments that
their fiduciary duty breaches did not cause a loss to the Plan,
the amount of damages was not established with reasonable
certainty, the agencies could not satisfy a judgment using funds
obtained through government grants, and the district court erred
in awarding attorneys' fees, we affirm for substantially the
reasons set forth by the district court in its Memoranda of
Decision and Orders entered October 20, 2011 and April 24, 2012.
See L.I. Head Start Child Dev. Servs., Inc. v. Econ. Opportunity
Comm'n of Nassau Cnty., Inc., 865 F. Supp. 2d 284 (E.D.N.Y.
2012); L.I. Head Start Child Dev. Servs., Inc. v. Econ.
Opportunity Comm'n of Nassau Cnty., Inc., 820 F. Supp. 2d 410(E.D.N.Y. 2011).
- 32 -