Secretary United States Department of Labor v. Kwasny , 853 F.3d 87 ( 2017 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 16-1872
_____________
SECRETARY UNITED STATES DEPARTMENT
OF LABOR
v.
RICHARD J. KWASNY; KWASNY AND
REILLY, P.C.; KWASNY AND REILLY 401(K)
PROFIT SHARING PLAN
Richard J. Kwasny,
Appellant
______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(District Court No. 2-14-cv-04286)
District Judge: The Honorable Eduardo C. Robreno
______________
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
November 7, 2016
______________
Before: McKEE and RESTREPO, Circuit Judges; HORNAK,
District Judge. *
(Opinion filed: April 5, 2017)
*
Honorable Mark R. Hornak, District Judge for the United
States District Court for the Western District of Pennsylvania,
sitting by designation.
Richard J. Kwasny
1039 South Kimbles Road
Yardley, PA 19067
Attorney for Appellant
Leonard H. Gerson
Thomas Tso
United States Department of Labor
Office of the Solicitor
Room N-4611
200 Constitution Avenue, N.W.
Washington, DC 20210
Attorneys for Appellee
____________
OPINION OF THE COURT
____________
McKEE, Circuit Judge.
Richard Kwasny appeals the District Court’s order
granting summary judgment in favor of the Secretary of
Labor and denying his cross-motion for summary judgment.
Because the record shows no genuine issue of disputed fact
regarding Kwasny’s violation of the Employee Retirement
and Income Security Act of 1974 (“ERISA”) by directing
employee 401(k) contributions into his Firm’s general assets,
we hold that the District Court did not err in granting
summary judgment. We will therefore affirm, but remand for
a determination of whether the judgment against Kwasny
should be offset by a previous Pennsylvania state court
judgment entered against Kwasny for the same misdirected
employee contributions.
I
Richard Kwasny is a former managing partner of the
now-dissolved law firm Kwasny & Reilly, P.C. (the “Firm”).
While Kwasny was a partner at the Firm, the Firm established
a 401(k) Profit Sharing Plan (the “Plan”) for its employees,
2
and Kwasny was named as a trustee and fiduciary of the
Plan.1 Between September of 2007 and November of 2009,
the Plan sustained losses in the amount of $40,416.302
because Plan contributions withdrawn from employees’
paychecks were commingled with the Firm’s assets and were
not deposited into the Plan.
In 2011, the Secretary of Labor received a
substantiated complaint from a Plan member, which triggered
an investigation. The Secretary eventually filed this action to
recover the lost funds, remove Kwasny as trustee and
fiduciary of the Plan, and enjoin Kwasny from acting as a
plan fiduciary in the future. The Secretary and Kwasny
thereafter filed cross motions for summary judgment. The
District Court granted the Secretary’s motion for summary
judgment and denied Kwasny’s. Kwasny appeals.
II
The District Court had jurisdiction pursuant to 29
U.S.C. § 1132(e). We have jurisdiction under 28 U.S.C. §
1291. Our review of a District Court’s grant of summary
judgment is plenary.3 Accordingly, we apply the same
standard as the District Court.4 Summary judgment is
appropriate where, construing all evidence in the light most
favorable to the nonmoving party, “there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”5 Our function is not to “weigh
the evidence and determine the truth of the matter but to
determine whether there is a genuine issue for trial.”6
III
We must first decide whether the District Court
correctly found that Kwasny violated the Employee
Retirement and Income Security Act of 1974 (“ERISA”) by
1
Under ERISA, a trustee who exercises control respecting the
management or disposition of Plan assets is also a fiduciary.
29 U.S.C. § 1002(21)(A).
2
$40,416.30 was never forwarded to the Plan and $2,099.06
was forwarded late and without interest.
3
Santini v. Fuentes, 795 F.3d 410, 416 (3d Cir. 2015).
4
Id.
5
Fed. R. Civ. P. 56(a); see also Daniels v. Sch. Dist. of
Phila., 776 F.3d 181, 192 (3d Cir. 2015).
6
Santini, 795 F.3d at 416.
3
directing employee 401(k) contributions into the firm’s
general assets. Next, we must determine whether the District
Court erred in denying Kwasny’s motion for summary
judgment based on his affirmative defenses.
A
The District Court’s grant of the Secretary’s motion
for summary judgment was based primarily on facts deemed
admitted under Federal Rule of Civil Procedure 36(b).7
Kwasny never sought to amend or withdraw the admissions,
even upon invitation by the District Court.8 Kwasny likewise
does not appeal the order deeming the issues admitted. In
addition to Kwasny’s admissions, the District Court relied on
testimony by the Firm’s former bookkeeper, Kathleen
Meske.9 Kwasny’s evidence, on the other hand, consists only
of his own declaration, which he claims creates a genuine
issue of material fact.
Matters deemed admitted due to a party’s failure to
respond to requests for admission are “conclusively
established” under Federal Rule of Civil Procedure 36(b),10
and may support a summary judgment motion.11 Rule 36(b) is
intended to narrow the triable issues in the case.12 An
admission is therefore an “unassailable statement of fact”13
and is binding on the non-responsive party unless withdrawn
or amended.14 Because Kwasny did not appeal the District
Court’s order deeming the issues admitted, the admissions
7
Perez v. Kwasny, 159 F. Supp. 3d 565, 569 (E.D. Pa. 2016).
8
Id. at 568 n.5.
9
Id. at 570.
10
Fed. R. Civ. P. 36(b).
11
Anchorage Assocs. v. Virgin Islands Bd. of Tax Review,
922 F.2d 168, 176 n.7 (3d Cir. 1990).
12
Fed. R. Civ. Proc. 36(b).
13
Langer v. Monarch Life Ins. Co., 966 F.2d 786, 803 (3d
Cir. 1992) (quoting Airco Indus. Gases, Inc. v. Teamsters
Health & Welfare Pension Fund, 850 F.2d 1028, 1037 (3d
Cir. 1988)).
14
Airco Indus. Gases, Inc., 850 F.2d at 1035–37 (“The new
provisions give an admission a conclusively binding effect . .
. unless the admission is withdrawn or amended.”) (quoting
Fed. R. Civ. P. 36 advisory committee’s note).
4
continue to bind him in this appeal.15 Accordingly, the
District Court was correct to treat Kwasny’s admissions as
established fact.
Kwasny’s admissions and Meske’s declaration
together establish a prima facie case of an ERISA violation.
Under ERISA, trustees of an ERISA retirement plan (such as
a 401(k) plan) have the following duties: (1) ensure that plan
assets are held in a trust account,16 (2) act solely in the
interest of the plan participants and their beneficiaries,17 (3)
act prudently,18 (4) prevent the plan from engaging in a direct
or indirect transfer of plan assets for the benefit or use of a
party in interest,19 and (5) refrain from dealing with the plan’s
assets for the fiduciary’s own interest.20 Breach of these
duties results in a violation and may trigger restitution or
injunctive relief.21 Plan funds protected under the statute
include money withheld from employees’ paychecks for
purposes of the benefit plan but not yet delivered to the
benefit plan.22 The Plan’s trustees are jointly and severally
liable for money that is withheld but misdirected from a
plan.23
15
See State Nat’l Ins. Co. v. Cty. of Camden, 824 F.3d 399,
404 (3d Cir. 2016) (“If an appeal is taken only from a
specified judgment, this Court does not exercise jurisdiction
to review other judgments that were not specified or ‘fairly
inferred’ by the Notice.”).
16
29 U.S.C. § 1103.
17
§ 1104(a)(1)(A).
18
§ 1104(a)(1)(B).
19
§ 1106(a)(1).
20
§ 1106(b)(1).
21
§ 1109(a).
22
29 C.F.R. § 2510.3-102 (“[T]he assets of the plan include
amounts . . . that a participant or beneficiary pays to an
employer, or amounts that a participant has withheld from his
wages by an employer, for contribution or repayment of a
participant loan to the plan . . . .”).
23
Struble v. N.J. Brewery Emps.’ Welfare Trust Fund, 732
F.2d 325, 332 (3d Cir. 1984) (“These cases do not require,
however, that the plaintiff name all of the trustees as
defendants. It is a well-established principle of trust law that
5
Here, the record establishes that: (1) “Between January
2007 and December 2007 Richard Kwasny was a trustee of
the Plan,” (2) “Between September 7, 2007 and November
13, 2009, $41,936.73 was withheld from employee
compensation but not deposited into the Plan,”24 (3) “Richard
Kwasny directed that employee withholdings intended for
deposit into the Plan be commingled with the general assets
of the Firm,” (4) “Richard Kwasny directed that the employee
withholdings intended for deposit into the Plan be used for
the benefit of the Firm, and (5) “Richard Kwasny was
responsible for determining if payroll checks and contribution
checks were issued . . . between January 2007 and December
2009.”25 Additionally, the Firm’s bookkeeper, Kathleen
Meske, declared that Kwasny instructed her to send the
employee contribution checks to the Plan asset custodian only
after he paid employee wages, Kwasny himself, and the
Firm’s outstanding bills. In sum, the facts establish that
Kwasny, a Plan trustee, used withheld employee
contributions—protected Plan funds under ERISA—for the
benefit of himself and the Firm in violation of his fiduciary
duties.
Kwasny argues that Meske’s declaration should be
ignored because she was not privy to all conversations among
the partners, and unbeknownst to Meske, the partners could
have decided not to accept a paycheck and therefore did not
have funds to contribute to the 401(k). However, the
possibility that the firm partners may have properly failed to
contribute funds is irrelevant. The ERISA violation is
prefaced on Kwasny’s directing employee contributions to be
withheld from the employees’ paychecks, not the partners’.
Similarly, Kwasny’s assertion that he was not the only trustee
of the Firm and was therefore not solely responsible for Plan
assets is irrelevant because, as we have already noted, trustee
multiple trustees who are at fault may be held jointly and
severally liable.”).
24
Kwasny is deemed to have admitted that $41,936.73 was
withheld in employee contributions, but the Secretary alleges
that only $40,416.30 was withheld and not repaid into the
Plan.
25
J.A. at 117–18.
6
liability is joint and several.26 Moreover, the fact that Kwasny
was not permitted to cross-examine Meske is irrelevant for
summary judgment purposes.27 We therefore conclude that
the District Court’s grant of summary judgment in favor of
the Secretary was correct.
B
We also agree with the District Court’s conclusion that
Kwasny is not entitled to summary judgment based on either
of the two defenses he raises on appeal: (1) statute of
limitations, and (2) res judicata.
1. Statute of Limitations
Actions such as this one for breach of fiduciary duty
may not be brought under ERISA after the earlier of “(1) six
years . . . after 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.”28 Put simply, Section 1113 creates “a
general six year statute of limitations, shortened to three years
in cases where the plaintiff has actual knowledge.”29 Actual
knowledge “requires a showing that plaintiffs actually knew
not only of the events that occurred which constitute the
breach or violation but also that those events supported a
claim of breach of fiduciary duty or violation under
ERISA.”30
Kwasny asserts the statute of limitations has expired
because Firm employees and the Department of Labor had
actual knowledge of the withholdings before 2011, and
26
Struble, 732 F.2d at 332.
27
Schiavone Const. Co. v. Time, Inc., 847 F.2d 1069, 1084
(3d Cir. 1988)) (“[N]either a desire to cross-examine an
affiant nor an unspecified hope of undermining his or her
credibility suffices to avert summary judgment.” (quoting
Nat’l Union Fire Ins. Co. v. Argonaut Ins. Co., 701 F.2d 95,
97 (9th Cir.1983))).
28
29 U.S.C. § 1113.
29
Kurz v. Phila. Elec. Co., 96 F.3d 1544, 1551 (3d Cir. 1996).
30
Montrose Med. Grp. Participating Sav. Plan v. Bulger, 243
F.3d 773, 787 (3d Cir. 2001) (quoting Int'l Union of Elec.,
Elec., Salaried, Mach. & Furniture Workers, AFL-CIO v.
Murata Erie N. Am., Inc., 980 F.2d 889, 900 (3d Cir. 1992)).
7
therefore, the Secretary’s 2014 suit is barred. Kwasny relies
on the following statements from his declaration:
 Firm employees were aware that their
contributions were not being deposited into the
Plan as early as 2007 because it was widely
known and documented in monthly statements
to employees.
 A Department of Labor investigator examined
all the Firm’s Plan books and records at some
point in 2010 in response to a complaint by
Larry Haft, a previous employee of the Firm.
 The Employee Benefits Security Administration
(EBSA) received complaint calls in 2006 and
2010 regarding the failure to remit employee
contributions to a 401(k) plan.
The Secretary’s evidence consists of the declarations
of two EBSA employees: Trudy Logan from the EBSA
regional office and the regional director Norman Jackson.
Logan declared that EBSA received complaints in 2006 and
2010 but the callers submitted no evidence to substantiate
their claims, and they did not identify the Plan at issue here. It
was not until Fall 2011 that EBSA received a complaint that
included substantiating evidence and sufficiently identified
the Plan to allow it to be referred for enforcement. Consistent
with Logan’s declaration, Jackson declared that there was no
investigation into the Firm’s Plan contributions before
November 2011.
We conclude that the District Court correctly held that
Kwasny’s evidence creates no genuine issue of material fact
regarding whether the Secretary’s suit was brought within the
statute of limitations. As the District Court correctly noted,
whether or not Firm employees were aware of violations is
legally irrelevant because the plaintiff in this case is the
Secretary of Labor, not the Firm employees.31 Likewise, we
31
See Landwehr v. DuPree, 72 F.3d 726, 732 (9th Cir. 1995)
(“[T]he limitations period in an ERISA action begins to run
on the date that the person bringing suit learns of the breach
or violation.”) (emphasis added).
8
agree with the District Court that Kwasny’s self-serving
declaration stating that someone from the Department of
Labor examined the Firm’s books at some unspecified time in
2010 is insufficient to create a triable issue of fact without
personal knowledge or facts to substantiate the assertion.32
Lastly, we agree that as a matter of law, the 2006 and
2010 EBSA complaint calls do not establish that the Secretary
had actual knowledge of the ERISA violation. Actual
knowledge “requires that a plaintiff have actual knowledge of
all material facts necessary to understand that some claim
exists.”33 Logan declared that EBSA had no knowledge that
the Plan was implicated by the complaints until 2011.
Additionally, EBSA had no knowledge of the specific facts
that made up the violation because no evidence was submitted
to substantiate the complaints in 2006 or 2010. Accordingly,
the District Court was correct in concluding that the 2006 and
2010 phone calls to EBSA are insufficient to establish the
Secretary’s actual knowledge of the ERISA claim against
Kwasny.
For all of these reasons, we hold that the District Court
was correct to conclude that Kwasny’s statute of limitations
defense does not prevent an entry of summary judgment in
favor of the Secretary.
2. Res Judicata
Res judicata includes the legal concepts of claim
preclusion and issue preclusion. Claim preclusion prevents
the relitigation of identical cases, whereas issue preclusion
32
Blair v. Scott Specialty Gases, 283 F.3d 595, 608 (3d Cir.
2002) (“In order to satisfy the standard for summary
judgment the affiant must ordinarily set forth facts, rather
than opinions or conclusions. An affidavit that is essentially
conclusory and lacking in specific facts is inadequate to
satisfy the movant or non-movant’s burden.”) (internal
quotation marks and brackets omitted).
33
Gluck v. Unisys Corp., 960 F.2d 1168, 1177 (3d Cir. 1992).
9
prevents the relitigation of discrete issues.34 Here, Kwasny is
only arguing claim preclusion as a defense.35
The preclusive effect of a state court judgment in a
subsequent federal lawsuit is determined by the Full Faith and
Credit Statute.36 The statute provides that state judicial
proceedings “shall have the same full faith and credit in every
court within the United States . . . as they have by law or
usage in the courts of such State . . . from which they are
taken.”37 The statute has been interpreted by the Supreme
Court to require federal courts to look to state law to
determine the preclusive effect of a prior state judgment.38
Accordingly, we must look to Pennsylvania law on claim
preclusion to determine whether it applies in this case.
Under Pennsylvania law, claim preclusion requires
privity between the parties in the previous case and the
current suit.39 In its broadest sense, privity is a “mutual or
34
R & J Holding Co. v. Redevelopment Auth. of Cty. of
Montgomery, 670 F.3d 420, 426–27, 429 (3d Cir. 2011).
35
Though Kwasny references issue preclusion in his brief, he
does not outline how the doctrine applies to this case. Indeed,
because the previous judgment was not in Kwasny’s favor,
any issues actually litigated would not have been decided in
his favor and would not advance his case here. Even so, under
Pennsylvania law, like claim preclusion, issue preclusion
requires privity between the parties, so the result here is the
same. See Metro. Edison Co. v. Pa. Pub. Util. Comm’n, 767
F.3d 335, 351 (3d Cir. 2014), cert. denied, 135 S. Ct. 2372
(2015) (outlining the requirements of issue preclusion under
Pennsylvania law as including “privity with a party in the
prior case”).
36
Metro. Edison Co., 767 F.3d at 350.
37
28 U.S.C. § 1738.
38
Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S.
373, 380–81 (1985).
39
Blunt v. Lower Merion Sch. Dist., 767 F.3d 247, 276 (3d
Cir. 2014), cert. denied sub nom. Allston v. Lower Merion
Sch. Dist., 135 S. Ct. 1738 (2015) (outlining the requirements
of claim preclusion as (1) a final judgment on the merits, (2)
the same parties or their privities, and (3) a subsequent suit
based on the same cause of action).
10
successive relationships to the same right of property, or such
an identification of interest of one person with another as to
represent the same legal right.”40
First, Kwasny argues that the Secretary is precluded
from bringing its claim against him because a former
employee of the Firm, Larry Haft, obtained a judgment from
Bucks County Court of Common Pleas based, in part, on
withheld employee 401(k) contributions. It is true that the
Secretary’s suit seeks monetary recovery to vindicate the
rights of all Firm employees (including Haft) for Kwasny’s
withheld employee 401(k) contributions. But when the
Secretary of Labor brings an ERISA suit, the government
seeks to vindicate broader interests than those of the
employees. As the Court of Appeals for the Seventh Circuit
has noted, the Secretary’s interests also include “the
reinforcement of public confidence in a private pension
system” and “supervising the enforcement of the ERISA
statute,” which “ensure[s] the financial stability of billions of
dollars of assets which in turn have a monumental effect on
not only the Treasury of the United States, but on the national
economy and commerce as well.”41 A private litigant cannot
represent these interests. Accordingly, the Court of Appeals
for the Seventh Circuit and a number of appellate courts have
held that the Secretary of Labor is not bound by the results
reached by private litigants in ERISA suits.42
We agree with our sister circuit courts of appeals that
under ERISA’s statutory framework, “private plaintiffs do not
adequately represent, and are not charged with representing,
the broader national public interests represented by the
Secretary” in ERISA suits.43 Because the Secretary’s interest
in maintaining the integrity of, and public confidence in, the
40
Greenway Ctr., Inc. v. Essex Ins. Co., 475 F.3d 139, 149
(3d Cir. 2007) (quoting Ammon v. McCloskey, 655 A.2d 549
(Pa. Super. Ct. 1995)).
41
Sec’y of Labor v. Fitzsimmons, 805 F.2d 682, 687–92 (7th
Cir. 1986) (en banc).
42
Id.; Wilmington Shipping Co. v. New England Life Ins. Co.,
496 F.3d 326, 340 (4th Cir. 2007); Donovan v. Cunningham,
716 F.2d 1455, 1462 (5th Cir. 1983); Herman v. S.C. Nat.
Bank, 140 F.3d 1413, 1424 (11th Cir. 1998).
43
Herman, 140 F.3d at 1424.
11
pension system is broader than the interests of private
litigants, we conclude that in ERISA suits, the Secretary is
not in privity with private litigants and is therefore not bound
by the results reached by private litigation. Accordingly, we
agree with the District Court’s conclusion that the Haft
judgement does not preclude the Secretary from bringing suit.
Kwasny also argues that, at the very least, the
judgment in this case should be offset by the judgment
awarded Haft in the previous litigation. The Secretary agrees
that such an offset may be appropriate if the previous
judgment was to recover withheld employee 401(k)
contributions.44 The District Court concluded, however, that
the judgment in this case should not be offset because the
Bucks County judgment dated August 29, 2012 references
only punitive damages and “Kwasny does not provide any
other signed court order indicating any other award against
him.”45 This conclusion is only partially correct. While it is
true that the August 29th order awards Haft punitive damages
against Kwasny in the amount of $32,677.15, Haft also
obtained a default judgment against Kwasny on November
28, 2011, in the amount of $80,435.85. This amount appears
to have been calculated including compensation for “401K
payments withheld from plaintiff’s wages . . . never deposited
in to the 401K plan.”46 It is unclear from the appellate record
whether an offset of the Secretary’s judgement is appropriate
in this case. We will therefore direct the District Court to
consider the issue on remand.
IV
For the reasons set forth above, we will affirm the
District Court’s grant of the Secretary’s motion for summary
judgment except as to the amount of the judgment. We
remand the matter for a determination as to whether the
amount of the judgment should be offset by the Bucks County
default judgment.
44
See Beck v. Levering, 947 F.2d 639, 642 (2d Cir. 1991)
(holding that offset of a judgment obtained by the Secretary
of Labor is only appropriate when private plaintiffs actually
recover concurrent judgments).
45
Perez, 159 F. Supp. 3d at 574.
46
J.A. at 79.
12