Michigan Regional Council of Carpenters Employee Benefits Fund et al v. H.B. Stubbs Company et al
Filing
59
OPINION and ORDER Granting in Part 36 MOTION to Dismiss Counts II, III and IV of Plaintiff's Complaint AND Setting Status Conference set for 8/12/2014 02:00 PM before District Judge Laurie J. Michelson - Signed by District Judge Laurie J. Michelson. (JJoh)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
TRUSTEES OF MICHIGAN REGIONAL COUNCIL OF
CARPENTERS’ EMPLOYEE BENEFITS FUND;
TRUSTEES OF MICHIGAN REGIONAL COUNCIL OF
CARPENTERS’ ANNUITY FUND; TRUSTEES OF
CARPENTERS’ PENSION TRUST FUND - DETROIT AND
VICINITY; TRUSTEES OF THE DETROIT CARPENTRY
JOINT APPRENTICESHIP AND TRAINING FUND;
TRUSTEES OF THE U.B.C. ADVANCEMENT FUND;
TRUSTEES OF THE CARPENTERS’ WORKING DUES
FUND; TRUSTEES OF THE CARPENTERS’ SPECIAL
ASSESSMENT FUND; THE MICHIGAN REGIONAL
COUNCIL OF CARPENTERS, UNITED BROTHERHOOD
OF CARPENTERS AND JOINERS OF AMERICA;
No. 2:14-cv-11393
Hon. Laurie J. Michelson
Plaintiffs;
and
COMERICA BANK,
Intervening Plaintiff;
v.
H.B. STUBBS COMPANY, n/k/a H.B. STUBBS COMPANY,
L.L.C.; H.B. STUBBS HOLDINGS, INC.; H.B. STUBBS
COMPANY, L.L.C. – EAST; H.B. STUBBS COMPANY,
L.L.C. – WEST; H.B. STUBBS PROPERTIES, L.L.C;
SCOTT STUBBS; STEPHEN H. STUBBS; and KENNETH
W. JACOBSON;
Defendants.
OPINION AND ORDER GRANTING IN PART
DEFENDANTS’ MOTION TO DISMISS [36]
This case presents the following legal question: assuming a company agreed to, but did
not pay contributions to an employee-benefit plan governed by ERISA, are those due-and-owing
contributions plan assets such that a company official violates fiduciary duties owed to the plan
by paying the company’s other creditors instead of the plan? Plaintiffs are the trustees of various
employee-benefit funds (e.g., the Trustees of Michigan Regional Council of Carpenters’
Employee Benefits Fund) (“the Trustees”). In Count III of a four-count complaint they accuse
three officers of various companies operating under the “H.B. Stubbs” name—Defendants Scott
Stubbs (“Scott”), Stephen H. Stubbs (“Stephen”), and Kenneth W. Jacobson (“Jacobson”)—of
breaching fiduciary obligations owed to the funds under the Employee Retirement Income
Security Act of 1974. The Trustees say that “numerous cases from [the Eastern District of
Michigan] confirm . . . that an individual defendant violates the applicable ERISA sections by
paying other creditors instead of making benefit payments because benefit payments become
fund property once they are due and owing.” (Dkt. 51, Pl.’s Resp. to Def.’s Mot. to Dismiss at 9.)
Before the Court is Defendants’ motion to dismiss Count III pursuant to Federal Rule of Civil
Procedure 12(b)(6). Defendants argue that Scott’s, Stephen’s, and Jacobson’s decisions on which
bills to pay were corporate, not fiduciary, in nature. Although the Court’s ruling rests primarily
on a different (but related) rationale, the Court does agree with Defendants that Count III fails to
state a plausible breach-of-fiduciary-duty claim. It will thus be dismissed from this suit.
I.
Because Defendants have moved pursuant to Rule 12(b)(6), the Court accepts as fact all
of the non-conclusory allegations in the Complaint and draws reasonable inferences from those
well-pled allegations in the Trustees’ favor. See Hunter v. Sec’y of U.S. Army, 565 F.3d 986, 992
(6th Cir. 2009). The following summary, although it includes some background allegations from
Defendants’ motion, adheres to this standard.
The H.B. Stubbs entities are, or perhaps more accurately, were, in the business of
“exhibit and event marketing.” (Dkt. 36, Defs.’ Mot. to Dismiss at 5.) With locations in both
Michigan and Utah, the H.B. Stubbs entities helped design and set up exhibits at shows around
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the country, including, for example, the North American International Auto Show in Detroit,
Michigan. (Id.) Apparently, much of the entities’ work was tied to the automotive industry, and,
with the bankruptcy of General Motors, “H.B. Stubbs was hit hard . . . to the tune of
approximately $1 million.” (Id.)
More recently, the H.B. Stubbs entities lost three customers constituting half their
volume. (Id. at 6.) This caused the entities to downsize and, in March 2014, seek a $2.7 million
forbearance with their lender, Comerica Bank. (Id.; Dkt. 31, Comerica’s Mot. to Intervene Ex. A,
Forbearance Agreement.) The entities argue that “Comerica has a first priority security interest
on all of the assets of each of the H.B. Stubbs entities to secure its loan—which, by any
calculation, is in excess of the value of the assets of H.B. Stubbs.” (Id.) (Comerica has intervened
in this lawsuit to pursue this interest. (Comerica’s Mot. to Intervene at ¶¶ 16, 17, 21; Dkt. 48,
Comerica’s Concurrence in Defs.’ Mot. to Dismiss at 5.)) Defendants add that, “[o]ver the
years,” the Stubbs family put in “millions of their own funds in an effort to support the
company.” (Defs.’ Mot. to Dismiss at 6.) Nonetheless, H.B. Stubbs is now winding down its
affairs. (See id.)
Given the financial condition of the H.B. Stubbs entities, Count III of the Trustees’
Complaint, the only (remaining) count asserting that Scott, Stephen, and Jacobson are personally
liable, is critical to the Trustees’ ability to recover in this lawsuit. The Trustees, representing an
employee-benefits fund, a pension fund, and an apprenticeship fund (among others), say that the
H.B. Stubbs entities employed participants of their funds to work on various construction
projects in Michigan. (Dkt. 1, Compl. ¶ 26.) According to the Trustees, H.B. Stubbs was
contractually obligated to make contributions to their funds for the benefit of the people it
employed, but failed to make over $500,000 worth of contributions. (See Compl. ¶¶ 14–18.) The
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Trustees also maintain that the unpaid contributions became “plan assets” within the meaning of
ERISA “at the time they became due.” (Compl. ¶ 28.) And that Scott, Stephen, and Jacobson, “as
owners and/or officers of H.B. Stubbs, personally exercised authority and control over H.B.
Stubbs’ unpaid fringe benefit contributions.” (Compl. ¶ 29.) Building on these last two
assertions, the Trustees conclude that the three officers breached fiduciary obligations owed to
their funds under ERISA by “directing that H.B. Stubbs’ assets . . . be paid to other creditors
and/or parties instead of being deposited with [the] [f]unds.” (Compl. ¶ 31.) Accordingly, say the
Trustees, Scott, Stephen, and Jacobson are “personally liable” to the funds in the amount of
$543,916.24. (Compl. ¶ 33.)
Defendants believe that even accepting all of these allegations as fact, the Trustees’
narrative does not state a claim upon which relief may be granted. They thus move to dismiss
Count III pursuant to Federal Rule of Civil Procedure 12(b)(6). (See generally, Dkt. 36, Defs.’
Mot. to Dismiss.) Defendants also moved to dismiss Counts II and IV of the Complaint (Defs’
Mot. at 6–7), but the Trustees have agreed to voluntarily dismiss those counts without prejudice
(Dkt. 51, Pls.’ Resp. to Defs.’ Mot. to Dismiss at 5). Defendants have not moved to dismiss
Count I, which seeks to hold only H.B. Stubbs liable. (See Defs.’ Mot. at 6–7.)
II.
Although the Trustees cite older cases in support of “lenient standards of ‘notice
pleading’” (see Pls.’ Resp. at 6 n.2–3), the Supreme Court’s decisions in Bell Atl. Corp. v.
Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), set the pleading
standard. Under the plausibility standard articulated in those cases, when a defendant moves to
dismiss pursuant to Rule 12(b)(6), a court can first cull legal conclusions from the complaint,
leaving only factual allegations to be accepted as true. Iqbal, 556 U.S. at 679. The question then
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becomes whether the remaining assertions of fact (and reasonable inferences drawn from them,
Lutz v. Chesapeake Appalachia, L.L.C., 717 F.3d 459, 464 (6th Cir. 2013)), “allow[] the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged,” Iqbal, 556
U.S. at 678. Although this plausibility threshold is more than “sheer possibility that a
defendant . . . acted unlawfully,” it is not a “‘probability requirement.’” Id. at 678 (quoting
Twombly, 550 U.S. at 556). Whether a plaintiff has presented enough factual matter to
“‘nudg[e]’” its claim “‘across the line from conceivable to plausible’” is “a context-specific task”
requiring this Court to “draw on its judicial experience and common sense.” Iqbal, 556 U.S. at
679, 683 (quoting Twombly, 550 U.S. at 570).
Applying this legal standard, Defendants’ motion asks the Court to find that it is
implausible that Scott, Stephen, and Jacobson breached fiduciary obligations owed to the funds
under ERISA by paying H.B. Stubbs’ other creditors instead of the funds. This inquiry begins
with whether Scott, Stephen, and Jacobson were fiduciaries under ERISA.
III.
Under the Employee Retirement Income and Security Act of 1974,
a person is a fiduciary with respect to a plan to the extent (i) he 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, (ii) he renders investment advice for 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 (iii) he has any discretionary
authority or discretionary responsibility in the administration of such plan. . . .
29 U.S.C. § 1002(21)(A) (emphasis added). Thus, under § 1002(21)(A)(i), which is the only
statutory provision fairly implicated by Count III (see Compl. ¶¶ 29–30), the Trustees must plead
factual matter permitting the reasonable inference that (1) H.B. Stubbs’ unpaid benefit
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contributions were “[plan] assets” and (2) Scott, Stephen, and Jacobson exercised “authority or
control” over the “management or disposition” of those assets.
Starting with the “plan assets” prong, it is well-settled that if an employer withholds a
portion of employee wages for the purpose of paying the funds, the withheld wages are plan
assets. This rule derives directly from the Department of Labor’s regulations implementing
ERISA:
the assets of the plan include amounts (other than union dues) 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, as of the earliest date on which such contributions or repayments can
reasonably be segregated from the employer’s general assets.
29 C.F.R. § 2510.3–102 (emphasis added); see also Pantoja v. Edward Zengel & Son Exp., Inc.,
500 F. App’x 892, 895 (11th Cir. 2012); Trustees of the Graphic Commc’ns Int’l Union Upper
Midwest Local 1M Health & Welfare Plan v. Bjorkedal, 516 F.3d 719, 733 (8th Cir. 2008); In re
Luna, 406 F.3d 1192, 1206 n.13 (10th Cir. 2005) (“Where the issue is not employer contributions
(as here), but rather employee contributions held by the employer, courts will recognize that the
employer meets ERISA’s statutory definition of a fiduciary.” (emphasis in original)).
But as this Court reads Count III, the Trustees have only asserted that employer
contributions are at issue. In particular, the Trustees aver that “H.B. Stubbs’ unpaid contributions
owed to the [f]unds became plan assets at the time they became due, within the meaning of
ERISA.” (Compl. ¶ 28 (emphasis added).) And in their response to Defendants’ motion, they
further assert that “an employer’s contributions become plan assets when they become due.”
(Dkt. 51, Pls.’ Resp. to Defs.’ Mot. to Dismiss at 7–8 (emphasis added).) The Trustees do not
mention withheld employee wages. So the proper question is this: under what circumstances do
employer contributions become plan assets?
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It appears that there is no answer to this question that binds this Court. The Department
of Labor’s regulations say nothing about when employer contributions become plan assets. See
Pantoja, 500 F. App’x at 895 (“[The] federal regulations do not address employer contributions
to an ERISA plan.”); In re Halpin, 566 F.3d 286, 289 (2d Cir. 2009) (“Although the Department
of Labor . . . has officially issued a regulation that specifies when employee contributions
become assets, see 29 C.F.R. § 2510.3–102, it has not issued a formal rule governing when
employer contributions become plan assets.”). The Supreme Court has not ruled on the issue. But
see In re Halpin, 566 F.3d at 291 (providing that the Supreme Court has “strongly indicated that
unpaid contributions are not plan assets” (citing Jackson v. United States, 555 U.S. 1163 (2009));
accord Pantoja, 500 F. App’x at 896. And, based on the Court’s research, the Sixth Circuit Court
of Appeals has not yet squarely addressed the issue of when employer contributions become plan
assets. See also Trustees of Detroit Carpenters Fringe Ben. Funds v. Nordstrom, 901 F. Supp. 2d
934, 940 (E.D. Mich. 2012) (“[T]he Sixth Circuit has not addressed the issue of when unpaid
benefit contributions become plan assets.”); cf. Hi-Lex Controls, Inc. v. Blue Cross Blue Shield
of Michigan, 751 F.3d 740, 745–46 (6th Cir. 2014) (rejecting Blue Cross Blue Shield of
Michigan’s argument that the employer contributions it held were not plan assets; explaining that
the summary plan description established that it was the employer’s intent to “place plan assets
for its self-funded Health Plan with BCBSM in its capacity [as the third-party administrator of
the plan]”); Sheet Metal Local 98 Pension Fund v. AirTab, Inc., 482 F. App’x 67, 69 (6th Cir.
2012) (“We need not reach the question of whether the unpaid contributions were plan assets
under the terms of the collective bargaining agreement, because even if they were, the [corporate
officers] were not fiduciaries under ERISA and so cannot be personally liable.”).
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Although there is no binding authority on the issue of when employer contributions
become plan assets, there is plenty of persuasive authority. The Court first reviews those cases,
from outside this jurisdiction, that hold that employer contributions are not plan assets when due
absent an agreement between the employer and the benefit funds to the contrary. The Court then
examines the contrary authority from outside this district and seemingly contrary authority from
this district.
A.
The Department of Labor has stated that “‘employer contributions become an asset of the
plan only when the contribution has been made.’” In re Halpin, 566 F.3d 286, 289 (2d Cir. 2009)
(citing Employee Benefits Sec. Admin., U.S. Dep’t of Labor, Field Assistance Bulletin 2008-1,
at 1–2 (Feb. 1, 2008); U.S. Dep’t of Labor, Advisory Op. No. 93-14A (May 5, 1993); U.S. Dep’t
of Labor, Advisory Op. No. 2005-08A (May 11, 2005)). Indeed, the Department has explained
that its enforcement practices turn on the distinction between employee and employer
contributions:
When an employer misappropriates contributions that the employee has made to
ERISA funds, the Secretary [of the Department of Labor] sues the employer
directly. In contrast, when an employer fails to pay contributions, and the plan’s
fiduciaries do not pursue the claim, the Secretary typically sues the fiduciaries for
failing to enforce the plan’s rights. . . . In these cases, the Department’s position is
that the employer’s failure to pay its contributions does not constitute a breach of
fiduciary duty, and the Department lacks the authority to sue the employer
directly.
In re Halpin, 566 F.3d at 289–90 (citing Department of Labor’s amicus brief). But the
Department has also said that the plan assets determination “[‘]requires consideration of any
contract or other legal instrument involving the plan, as well as the actions and representations of
the parties involved.’” Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, 751 F.3d
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740, 745 (6th Cir. 2014) (quoting U.S. Dep’t of Labor, Advisory Op. No. 92-24A (Nov. 6,
1992)).
Numerous courts agree, or at least mostly agree, with the Department’s position. The
Eleventh Circuit has provided that “[t]he proper rule, developed by caselaw, is that unpaid
employer contributions are not assets of a fund unless the agreement between the fund and the
employer specifically and clearly declares otherwise.” ITPE Pension Fund v. Hall, 334 F.3d
1011, 1013 (11th Cir. 2003). The Third Circuit has stated, “We see no reason to disagree with
the Secretary’s legal argument that the ordinary notions of property rights determine whether an
asset is a plan asset, and that we should look to the plan and the plan documents in making this
determination.” Edmonson v. Lincoln Nat. Life Ins. Co., 725 F.3d 406, 428 (3d Cir. 2013); see
also Trustees of Nat. Elevator Indus. Pension v. Lutyk, 140 F. Supp. 2d 447, 455 & n.1 (E.D. Pa.
2001) (explaining that “courts in the Third Circuit look to the terms of the agreement under
which the obligation to pay the contributions arise” to determine whether an employer
contribution is a plan asset). And the Ninth: “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; this is true even where the employer is also a fiduciary of the plan.”
Cline v. Indus. Maint. Eng’g & Contracting Co., 200 F.3d 1223, 1234 (9th Cir. 2000); see also
Trustees of S. Cal Pipe Trades Health & Welfare Trust Fund v. Temecula Mech., Inc., 438 F.
Supp. 2d 1156, 1162–66 (C.D. Cal. 2006) (concluding that despite Cline’s absolute language, the
Ninth Circuit did not foreclose the contract-language exception to the general rule that employer
contributions are not plan assets).
The Second and Tenth Circuits have taken only a slightly different approach. Both Courts
of Appeal still hold that due-and-owing employer contributions are not plan assets. In re Halpin,
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566 F.3d 286, 290 (2d Cir. 2009) (“We agree with the Department’s interpretation that employer
contributions become assets only after being paid. . . . Under ordinary notions of property rights,
if a debtor fails to meet its contractual obligations to a creditor, the creditor does not
automatically own a share in the debtor’s assets.” (internal quotation marks omitted)); In re
Luna, 406 F.3d 1192, 1199 (10th Cir. 2005) (“Under ordinary notions of property rights, an
ERISA plan does not have a present interest in the unpaid contributions until they are actually
paid to the plan. In other words, the plan cannot use, devise, assign, transfer, or otherwise act
upon contributions that it has not yet received.”).
But the Second and Tenth Circuit go further and hold that the contractual right to collect
due-and-owing employer contributions (as opposed to the contributions themselves) are plan
assets. In re Halpin, 566 F.3d at 291; In re Luna, 406 F.3d at 1199–1201. Even so, the Second
Circuit’s rule is that because due-and-owing employer contributions are not plan assets (absent a
contract to the contrary), a corporate official’s decision to pay other company obligations instead
of making plan contributions is not a breach of fiduciary duty. In re Halpin, 566 F.3d at 286,
290. And the Tenth Circuit, although resting its decision not on the plan-assets prong of the
fiduciary inquiry but instead on the management-or-disposition prong, see 29 U.S.C.
§ 1002(21)(A)(i), reaches the same result: “[t]he act of failing to make contributions to the Funds
cannot reasonably be construed as taking part in the ‘management’ or ‘disposition’ of a plan
asset. The asset in question, it must be remembered, is the Trustees’ contractual right to collect
the unpaid contributions, and the [corporate officers] exercised no control over how the Trustees
manage or dispose of that asset.” In re Luna, 406 F.3d at 1204.
Although, as noted, the Sixth Circuit has not directly addressed the question, it has
favorably quoted the Eleventh Circuit’s “proper rule”: “Traditionally, the ‘proper rule, developed
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by caselaw, is that unpaid employer contributions are not assets of a fund unless the agreement
between the fund and the employer specifically and clearly declares otherwise.’” In re Bucci, 493
F.3d 635, 642 (6th Cir. 2007) (quoting ITPE, 334 F.3d at 1013). Further, some district courts in
the Sixth Circuit have followed the Eleventh Circuit’s decision in ITPE. See Trustees For
Michigan BAC Health Care Fund v.C.S.S. Contracting Co., Inc., No. 07-12331, 2008 WL
1820879, at *5 (E.D. Mich. Apr. 22, 2008) (“This Court agrees with the reasoning of ITPE, that
unpaid employer contributions become plan assets when due only when an agreement between
the parties explicitly so provides.”); Teamsters Local 1164 Welfare Fund v. AAA Pipe Cleaning
Corp., No. 1:08 CV 2609, 2010 WL 454803, at *8 (N.D. Ohio Jan. 4, 2010) (“District Courts in
the Sixth Circuit have relied on [In re Bucci] and ITPE in holding unpaid employer contributions
do not constitute plan assets unless expressly agreed to by the parties.”); cf. Iron Workers’ Local
No. 25 v. Future Fence Co., No. 04 73114, 2006 WL 2927670, at *3 (E.D. Mich. Oct. 12, 2006)
(“Plaintiffs do not point to any provision in the CBAs—or in fact in any other document—
specifically committing the individual signing the CBA on behalf of an employer to personal
liability for ERISA contributions.”).
This precedent is consistent with the reasoning behind the rule that unpaid employer
contributions are not plan assets (unless the parties contract otherwise):
if unpaid employer contributions were plan assets, the employer would
automatically become an ERISA fiduciary once it failed to make the payments.
As such, the employer would owe the plan undivided loyalty at the expense of
competing obligations—some fiduciary—to the business, and to others such as
employees, customers, shareholders and lenders, and an undifferentiated portion
of the companies[’] assets would be held in trust for the plan. It is difficult to
envision how proprietors could ever operate a business enterprise under such
circumstances.
In re Halpin, 566 F.3d at 292. The In re Halpin court concluded, “[i]t is highly unlikely—indeed
inconceivable—that Congress intended such a result.” Id.
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The Court finds the decisions of the Second, Third, Ninth, Tenth, and Eleventh Circuit
Courts of Appeal persuasive and concludes that Count III fails to state a claim for relief. The
Trustees have not alleged that Scott, Stephen, or Jacobson actually made employer contributions
and then used those vested plan assets to pay H.B. Stubbs’ debts. Instead, Count III
unequivocally provides that the employer contributions were “unpaid,” i.e., that Scott, Stephen,
and Jacobson paid other creditors “instead of” paying the funds. (Compl. ¶¶ 28, 31.) Nor have
the Trustees pled contract language indicating that H.B. Stubbs’ contributions became vested
plan assets once due, or even included with their Complaint the relevant agreements such that the
Court might determine for itself whether the H.B. Stubbs entities and the funds agreed that H.B.
Stubbs’ contributions would become plan assets once due. (See generally, Compl.) It is thus
implausible that Scott, Stephen, or Jacobson acted with authority or control over plan assets
when they paid H.B. Stubbs’ other creditors before the funds. It follows that Count III does not
adequately plead that Scott, Stephen, or Jacobson breached any fiduciary duties imposed by
ERISA and owed to the funds.
B.
The Trustees, however, cite case law from this district that is seemingly contrary to the
position taken by the Second, Third, Ninth, Tenth, and Eleventh Circuit Courts of Appeal. The
Court’s research also uncovered case law from outside the Eastern District of Michigan that is
directly contrary to the rule that outstanding employer contributions are not plan assets unless
plan language says otherwise. Board of Trustees of Airconditioning & Refrigeration Industries
Health & Welfare Trust Fund v. J.R.D. Mechanical Services, Inc., 99 F. Supp. 2d 1115 (C.D.
Cal. 1999). Neither the Trustees’ cases nor this Court’s research persuade the Court to deviate
from its conclusion.
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First, in J.R.D. Mechanical, a court in the Central District of California “reject[ed]” the
defendants’ distinction “between employer contributions in the form of employee wage
deductions and other employer contributions.” 99 F. Supp. 2d at 1120. The court acknowledged
that “the Trust Agreements [did] not specify that unpaid employer contributions are vested assets
of the Trust Funds,” but found that “such contributions, regardless if they [were] deducted from
wages, [were] due and owing on the tenth day of the month following the month in which the
responsibility for such contributions are incurred”; it followed that “[i]nherent in the Trust
Agreements [was] the concept that employer contributions become trust assets immediately after
employees earn their wages.” Id.
The Court does not find J.R.D. Mechanical persuasive. First, its viability is in doubt after
the Ninth Circuit’s statement in Cline, 200 F.3d 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 . . . .” See also Motion Picture Lab. Technicians & Film
Editors Local 780 Pension Fund v. Astro Color Labs., Inc., No. 01 C 2096, 2002 WL 596364, at
*2 (N.D. Ill. Apr. 17, 2002) (“J.R.D.’s holding appears to have been overruled by Cline . . . .”).
Second, in reaching its conclusion, the J.R.D. court explained that it was “not persuaded by the
analysis utilized by several courts that employer contributions are assets only if the contracts
state that such contributions are ‘vested’ in or ‘due and owing’ the Trust Funds” given the
“Second Circuit’s decision in United States v. LaBarbara, 129 F.3d 81 (2nd Cir. 1997).” J.R.D.,
99 F. Supp. 2d at 1120 n.4. In particular, the court stated that “the Second Circuit [had] held that
delinquent employer contributions were plan assets.” Id. at 1121. But after J.R.D., the Second
Circuit clarified that LaBarbara did not so hold: “in LaBarbara, [w]e did not find that the unpaid
funds were plan assets; rather, we concluded that [the company’s] contractual obligation to the
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[ERISA-governed] plan was a chose in action, and hence an asset.” In re Halpin, 566 F.3d at
291. In short, the Court declines to follow a decision that may not be good law and, at a
minimum, has had one of its primary rationales undermined by subsequent precedent.
As to the cases from this district, the Trustees assert that the well-settled rule is that
employer contributions are plan assets once they become due. (Dkt. 51, Pls.’ Resp. to Defs.’
Mot. at 7–8.) They say that “the Eastern District of Michigan” has held that “an employer’s
contributions become plan assets when they become due.” (Pls.’ Resp. at 7–8.) And, “It is clear
that the Judges of the Eastern District of Michigan have consistently held that contributions
become plan assets when they become due and owing.” (Pls.’ Resp. at 8.) In support of these
assertions, the Trustees rely primarily on Plumbers Local 98 Defined Benefit Pension Fund v. M
& P Master Plumbers of Michigan, Inc., 608 F. Supp. 2d 873 (E.D. Mich. 2009), and authorities
cited therein, and to a lesser extent, Trustees of Detroit Carpenters Fringe Benefit Funds v.
Nordstrom, 901 F. Supp. 2d 934 (E.D. Mich. 2012). (Pls.’ Resp. at 8–9 & n.4–13.)
There are statements in both M & P Master Plumbers and Nordstrom that support the
Trustees’ position. In M & P Master Plumbers, various employee benefit funds sued the sole
shareholder and officer of M & P, Matthew Panknin, for breach of ERISA-imposed fiduciary
duties because he had not made required contributions to the funds. Id. at 875–76. In an attempt
to avoid personal liability, Panknin argued that “because he never withheld or designated monies
for purposes of making fringe benefit contributions, those funds never became plan assets.” Id. at
876. The court framed the question presented this way: “The Sixth Circuit has yet to consider
exactly when unpaid benefit contributions become plan assets under ERISA. Nor has any court,
seemingly, directly addressed Panknin’s novel argument that an employer is only responsible for
unpaid contributions when he formally withholds them from employee wages for purposes of
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making fringe benefit contributions.” Id. at 876. The court then stated, “Judges in this district
have repeatedly held that contributions are plan assets as soon as they are due and owing.” Id. at
877 (citing Iron Workers’ Local No. 25 Pension Fund v. McGuire Steel Erection, Inc., 352 F.
Supp. 2d 794, 805 (E.D. Mich. 2004); Operating Engineers’ Local 324 Fringe Benefit Funds v.
Nicolas Equipment, LLC, 353 F. Supp. 2d 851, 854 (E.D. Mich. 2004); Trustees of Mich.
Regional Council of Carpenters Employee Benefits Fund v. Accura Concrete Walls, Inc., 408 F.
Supp. 2d 370, 371 (E.D. Mich. 2005); United States v. Grizzle, 933 F.2d 943, 946–48 (11th Cir.
1991); LoPresti v. Terwilliger, 126 F.3d 34, 39 (2nd Cir. 1997)); accord Trustees of Iron
Workers Local 25 Pension Fund v. Crawford Door Sales, Inc., No. 09-CV-12370-DT, 2010 WL
1526363, at *4 (E.D. Mich. Apr. 16, 2010) (quoting M & P Master Plumbers, 608 F. Supp. 2d at
877). The M & P court concluded,
Ultimately, Panknin’s argument for lack of personal liability—that because
money was never collected for purposes of paying fringe benefit contributions, no
employee contributions were “withheld” or misappropriated as a matter of law—
does not overcome the principle that unpaid contributions become plan assets
when due. Panknin has cited no case law, and this Court has found none, in which
the courts excused unpaid contributions on this formalistic basis.
M & P Master Plumbers, 608 F. Supp. 2d at 879.
Nordstrom presents similar facts and reasoning. There, Michael Nordstrom, the sole
owner and officer of a construction company, Eagle Construction Services, Inc., used Eagle’s
income to pay “labor, payroll taxes, union dues, materials, bonds, equipment rental, workers
compensation insurance, general liability insurance, taxes, professional fees, rent and utilities.”
901 F. Supp. 2d at 936–37. But Eagle did not make any fringe benefit contributions. Id. at 937.
Employee-benefit funds sued, seeking to hold Nordstrom personally liable for breach of ERISAimposed fiduciary duties. Id. Nordstrom defended by arguing that “the unpaid contributions
owed to the Plaintiff Funds [were] not ‘plan assets.’” Id. at 940. The court, citing its prior
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decision in M & P, disagreed: “Although the Sixth Circuit has not addressed the issue of when
unpaid benefit contributions become plan assets, this Court and other judges in this district have
repeatedly held that pension and benefit fund contributions are plan assets as soon as they are
due and owing. . . . These cases universally treat delinquent payments to ERISA funds as de
facto mismanagement of plan assets.” Id. at 940–41 (citing cases). In support of this statement,
the Nordstrom court relied on the same cases cited in M & P, along with Plumbers Local 98
Defined Benefit Funds v. Controlled Water, Inc., No. 03-72888, 2006 WL 2708544, at *4 (E.D.
Mich. 2006), an opinion by the same judge who authored M & P and Nordstrom. See Nordstrom,
901 F. Supp. 2d at 940.
Although the Trustees believe otherwise, the Court considers the language that they rely
upon from M & P and Nordstrom to be dicta. This is because in both M & P and Nordstrom, the
court found that the employer and the funds had agreed that employer contributions would
become vested plan assets once due. See M & P Master Plumbers, 608 F. Supp. 2d at 879
(“[T]he CBA and trust agreements in this case simply do not contemplate Panknin’s excuse;
rather, by their terms, they set out a clear obligation to make contributions on a monthly basis
and to treat these unpaid contributions as inalienable plan assets. . . . Article IX of the agreement
further states: ‘No benefit payable at any time under the Plan shall be subject in any manner to
alienation, sale, transfer, assignment, pledge, attachment or encumbrance of any kind’”);
Nordstrom, 901 F. Supp. 2d at 941 (“[T]he CBA and Carpenters Pension and Benefit Fund trust
agreements, by their terms, set out a clear obligation to make contributions on a monthly basis
and to treat these unpaid contributions as inalienable plan assets. . . . [T]he Trust Agreements
state that ‘no benefit payable or to be payable at any time under the Plan shall be subject in any
16
manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, garnishment,
lien or charge’ of any kind.”).
The Court’s reading of M & P and Nordstrom is further supported by an examination of
the precedent that those decisions relied upon. In one Eastern District of Michigan case cited in
M & P and Nordstrom, the court acknowledged the conflicting case law and then concluded,
“[u]nder either of the above approaches,” the unpaid contributions were plan assets once due
because that is what the trust agreement provided. McGuire Steel Erection, 352 F. Supp. 2d at
804. In another Eastern District of Michigan case cited in M & P and Nordstrom, the court
simply quoted a footnote from a Middle District of Tennessee opinion: “‘[a] company’s
contributions to benefit funds, such as in this case, constitute plan assets under 29 U.S.C.
§ 1002(21)(A) as they become due.’” Nicolas Equipment, 353 F. Supp. 2d at 854 (quoting S.
Elec. Health Fund v. Kelley, 308 F. Supp. 2d 847, at 865 n.10 (M.D. Tenn. 2003)). But the three
decisions that the Kelley court cited all involved contract language providing that employer
contributions were plan assets once due. See Galgay v. Gangloff, 677 F. Supp. 295, 301 (M.D.
Pa. 1987) (“[T]he court by no means holds as a general rule that employers may be liable under
ERISA as fiduciaries merely because of delinquent contributions to a multi-employer plan . . . .
The key to the court’s ruling in this situation is the clear and undisputed language of the
Anthracite Wage Agreement . . . stating that title to all monies ‘due and owing’ the plaintiff fund
is ‘vested’ in the fund.”); Connors v. Paybra Min. Co., 807 F. Supp. 1242, 1246 (S.D.W. Va.
1992) (following Galgay where wage agreement stated “Title to all the monies paid into and/or
due and owing to the Trusts specified in this Article shall be vested in and remain exclusively in
the Trustees of those Trusts” (emphases in original)); Hanley v. Giordano’s Rest., Inc., No. 94
CIV. 4696 (RPP), 1995 WL 442143, at *4–5 (S.D.N.Y. July 26, 1995) (following both Galgay
17
and Connors where “[u]nder the Trust Agreement, contributions required pursuant to the
collective bargaining agreement ‘shall be deemed Trust assets whether or not collected.’”). As
for Accura Concrete Walls, another Eastern District of Michigan decision cited in M & P and
Nordstrom, it obtained its rule from Nicolas and LoPresti v. Terwilliger, 126 F.3d 34 (2d Cir.
1997). See 408 F. Supp. 2d at 373. Nicolas has been addressed. As for LoPresti, the Court
believes that In re Halpin, discussed above, sets forth the Second Circuit’s position on this issue.
The same is true for Grizzle, the Eleventh Circuit case cited in M & P and Nordstrom: the
Eleventh Circuit has made its position clear in ITPE Pension Fund v. Hall, 334 F.3d 1011 (11th
Cir. 2003). See also Pantoja v. Edward Zengel & Son Exp., Inc., 500 F. App’x 892, 895 (11th
Cir. 2012) (“[W]e have held that unpaid employer contributions are not ‘plan assets’ unless
specific and clear language in the plan documents or other evidence so indicates.”).
In short, the Court is not persuaded that M & P or Nordstrom or the cases cited therein,
are wholly irreconcilable with the authority this Court has relied upon from the Second, Third,
Ninth, Tenth, and Eleventh Circuit Courts of Appeal.
C.
And even if the Court were to agree with the Trustees to the extent that the unpaid
employer contributions were plan assets once due, it does not necessarily follow that Scott,
Stephen, or Jacobson breached fiduciary duties owed to the funds by paying H.B. Stubbs’ other
debts instead of the funds. On this point, the Court finds Sheet Metal Local 98 Pension Fund v.
AirTab, Inc., 482 F. App’x 67 (6th Cir. 2012) persuasive.
In AirTab, trustees of employee benefit funds governed by ERISA sought to hold the
Ileogbens (one an owner and president of AirTab, Inc., the other a “coordinator” at AirTab)
personally liable for breaching fiduciary duties they owed to the funds. Id. at 68. The Ileogbens
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argued that they “could not be held personally liable for the unpaid contributions because they
were not fiduciaries as defined by ERISA and the contributions were not assets of an ERISA
plan.” Id. The Sixth Circuit Court of Appeals held, “[w]e need not reach the question of whether
the unpaid contributions were plan assets under the terms of the collective bargaining agreement,
because even if they were, the Ileogbens were not fiduciaries under ERISA and so cannot be
personally liable.” Id. at 69. In reaching this conclusion, it relied on the Eleventh Circuit’s
decision in ITPE to reason that it was “the trustees that [had] control over the plan’s assets
according to the [collective bargaining agreement] and other contractual documents.” Id. Further,
said the Sixth Circuit, “the Ileogbens’ alleged refusal to pay the funds as required under the CBA
does not rise to the level of exercising discretionary control or authority such that fiduciary status
attaches.” Id. Relying on In re Luna and Future Fence, the Court explained, “[t]his is a situation
in which the plaintiff is attempting to transform an employer’s nonpayment of a contribution into
an exercise of control over a disposition of a plan’s asset. We cannot find the Ileogbens to be
fiduciaries under such an argument.” AirTab, 482 F. App’x at 70; accord Trustees of the Graphic
Commc’ns Int’l Union Upper Midwest Local 1M Health & Welfare Plan v. Bjorkedal, 516 F.3d
719, 732 (8th Cir. 2008) (“A corporate officer facing limited cashflow who chooses to pay
corporate obligations in lieu of employer contributions to an ERISA plan does not breach a
fiduciary duty when he makes those decisions wearing his corporate officer hat rather than his
fiduciary duty hat.”).
The reasoning of AirTab and Bjorkedal fit the allegations of the Trustees’ Complaint.
Under those cases, the Trustees’ assertion that Scott, Stephen, and Jacobson breached fiduciary
duties owed to the funds by paying the H.B. Stubbs entities’ other creditors instead of the funds
does not, without more, show that Scott, Stephen, and Jacobson exercised the requisite authority
19
or control over plan assets such that they acted as fiduciaries within the meaning of 29 U.S.C.
§ 1002(21)(A)(i).
IV.
Based on the foregoing, the Court enters the following ORDER. Pursuant to the
agreement of the parties, Counts II and IV of the Complaint are DISMISSED WITHOUT
PREJUDICE. (See Dkt. 51, Pls.’ Resp. at 5; Dkt. 52, Defs.’ Reply at 2.) The Court DISMISSES
Count III of the Complaint for reasons discussed at length. Defendants, however, have not
persuaded the Court that the Trustees cannot plead facts that remedy the pleading deficiencies
identified above. (See Defs.’ Reply at 5.) So dismissal of Count III is WITHOUT PREJUDICE
and Defendants’ Motion to Dismiss Counts II, III, and IV (Dkt. 36) is only GRANTED IN
PART. On the other hand, the Trustees’ request in their response brief for leave to amend their
Complaint (see Pl.’s Resp. at 7) is procedurally improper. See Jung v. Certainteed Corp., No. 102557, 2011 WL 772907, at *1 (D. Kan. Mar. 1, 2011) (“Generally, a plaintiff’s bare request in a
response to a motion to dismiss is not a proper vehicle for seeking leave to amend.”); Fed. R.
Civ. P. 7(b)(1) (“A request for a court order must be made by motion.”). So the Court DENIES
that request. As of now, only Count I remains part of this lawsuit.
The parties are to appear for a status conference on August 12, 2014, at 2:00 p.m.
SO ORDERED.
s/Laurie J. Michelson
LAURIE J. MICHELSON
UNITED STATES DISTRICT JUDGE
Dated: July 17, 2014
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CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing document was served on the attorneys
and/or parties of record by electronic means or U.S. Mail on July 17, 2014.
s/Jane Johnson
Case Manager to
Honorable Laurie J. Michelson
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