IUOE Local 324 Retirement Trust Fund et al v. LGC Global FM, LLC et al
Filing
50
OPINION and ORDER Granting In Part and Denying In Part Plaintiffs' 36 Motion for Partial Summary Judgment. Signed by District Judge Linda V. Parker. (RLou)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
IUOE LOCAL 324 RETIREMENT TRUST
FUND, ET AL.,
Plaintiffs,
Civil Case No. 17-13921
Honorable Linda V. Parker
v.
LGC GLOBAL FM, LLC (f/k/a Lakeshore
Rickman JV, LLC) and AVINASH RACHMALE,
Defendants.
_____________________________________/
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
This is an action to recover fringe benefit contributions allegedly owed to
Plaintiffs, which are pension and welfare benefit trust funds established and
administered pursuant to Section 302 of the Labor Management Relations Act of
1947, as amended, 29 U.S.C. § 186 (“LMRA”), and the Employee Retirement
Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. The funds
provide health care, pension, retirement, and apprenticeship training benefits for
members of Operating Engineers Local 324, a labor union. Pursuant to an audit of
Defendant LGC Global FM, LLC (“LGC”), Plaintiffs claim that LGC owes
$272,467.73 for unpaid contributions to the funds for the periods October 2015January 2016 and April 2018-June 2018. Plaintiffs seek to hold Defendant
Avinash Rachmale (“Mr. Rachmale”) personally liable for the unpaid contributions
as an ERISA fiduciary.
Presently before the Court is Plaintiffs’ motion for partial summary
judgment in which Plaintiffs ask the Court to enter judgment in their favor against
LGC and Mr. Rachmale and award Plaintiffs the above amount, in addition to fees
and costs, liquidated damages, and interest. (ECF No. 36.) Plaintiffs also ask the
Court to order LGC to submit to an audit to determine amounts due and owing for
all unaudited periods beginning June 2016. The motion has been fully briefed
(ECF Nos. 41, 42) and the Court held a motion hearing on September 11, 2019. At
the Court’s request, the parties filed supplemental material following the hearing.1
(ECF Nos. 47, 48.)
Factual and Procedural Background
LGC, initially named Lakeshore Rickman JV, LLC, was awarded a contract
in 2014 to perform operations management at a number of Detroit Public Schools.
(Defs.’ Resp. Ex. 1 ¶¶ 2, 3, ECF No. 41-1 at Pg ID 412.) At first, the company
1
Plaintiffs also filed a motion to strike Defendants’ supplemental submission,
arguing that it exceeds the scope of what the Court requested. (ECF No. 49.) If
the Court is not inclined to strike Defendants’ submission, Plaintiffs asks the Court
to grant them the opportunity to file a response brief. The Court does not agree
that Defendants’ submission is improper and therefore declines to strike it. The
Court’s decision on the pending summary judgment motion is not impacted by the
objected to arguments and matters in the submission and thus the Court also finds
it unnecessary for Plaintiffs to file an additional brief to address them. The Court
therefore is denying Plaintiffs’ motion to strike.
2
performed the work using its own employees. (Id. ¶ 5, Pg ID 413.) It therefore
entered a collective bargaining agreement (“CBA”) with the International Union of
Operating Engineers Local 324 (hereafter “Local 324” or “Union”), which covered
the work performed by Stationary Engineers and Boiler Operators in DPS
buildings.2 (Pls.’ Mot. Ex. A, ECF No. 36-2.) Roderick Rickman, LakeshoreRickman’s Chief Executive Officer, signed the CBA on October 1, 2014.
The CBA was effective from August 13, 2014 through August 12, 2017.
(Id.) However, the CBA contained the following renewal provision:
This Agreement shall remain in full force and effect through
August 12, 2017, and thereafter shall be renewed from year to year
unless either party shall notify the other party in writing at least sixty
(60) days prior to any anniversary date of this Agreement. Such
written notice shall be sent by registered or certified mail to the other
party.
(Id. at Art. XXXVIII, Pg ID 313.)
Under the CBA, signatory employers were required to make contributions to
Local 324 funds according to contribution rates set forth in the agreement. (Id.)
The rates were based on the hours worked by covered employees. (Id.) Pursuant
to the CBA, the Trust Agreements establishing the plans, together with any
insurance or related agreements approved by a majority of the Plan Trustees, were
incorporated into the CBA. (Id.) The Trust Agreement for the health care plan
2
Although the CBA was executed by Lakeshore Rickman, it was binding on its
successor, LGC. (See Pls.’ Mot. Ex. A Art. XVI, ECF No. 36-2 at Pg ID 305.)
3
provides inter alia that contributions employers are required to make to the health
care fund pursuant to the CBA “become vested Plan assets at the time they become
due and owing to the Fund.” (Pls.’ Mot. Ex. G at 2, ECF No. 36-8 at Pg ID 355.)
The Trust Agreement also grants the Trustee authority “to impose a reasonable
cost of collection assessment upon a delinquent Employer, in the nature of
liquidated damages and not as a penalty, as decided by the Trustees, for delinquent
Contributions as well as attorney, accounting, audit and related costs and fees.”
(Id. at 9, Pg ID 362.) Trust documents set forth the liquidated damages to be paid
on unpaid contributions, which is at least 10% of the total amount due. (Pls.’
Supp. Exs. A ¶¶ 3(b)-(d), Ex. B § 4.5, ECF Nos. 47-2, 47-3.)
In December 2015, LGC contracted with Tiskono & Associates, LLC
(“Tiskono”) to perform LGC’s responsibilities under the DPS contract. (Defs.’
Resp. Ex. 1 ¶ 7, ECF No. 41-1 at Pg ID 413.) It appears that Tiskono assumed
LGC’s responsibilities under the CBA; however, LGC has not contested its
continued liability as signatory to the CBA if Tiskono failed to fulfill its
obligations. (See id. ¶ 8.) Tiskono in fact failed to meet its financial obligations
under the CBA and Local 324 filed a complaint with the National Labor Relations
Board against LGC, Tiskono, and another entity (“NLRB Complaint”). (Id.; see
also Defs.’ Resp. Ex. 3, ECF No. 41-3.)
4
The complaints filed in the NLRB action alleged that LGC failed to meet its
financial and other obligations under the CBA since February 2016. (Defs.’ Resp.
Ex. 3 ¶ 18, ECF No. 41-3 at Pg ID 488; Defs.’ Supp. Ex. 1 ¶ 18, ECF No. 48-2 at
Pg ID 827.) This included LGC’s obligation to make contributions to the
following Local 324 funds: health and welfare plan; retirement savings plan; and
education and apprenticeship fund. (Id.) The NLRB matter eventually was
resolved through a settlement agreement, which LGC President Shashidar Shastri
(“Mr. Shastri”) signed on March 21, 2017. (Defs.’ Resp. Ex. 4, ECF No. 41-4 at
Pg ID 502.)
In the settlement agreement, the charged parties agreed to inter alia “make
retirement, annuity, and training fringe benefit contributions in the amount of
$324,600 to satisfy the parties’ collective-bargaining agreement, and comply with
the contractual provisions requiring continued fringe benefit fund contributions.”
(Id. at 2, ECF No. 41-4 at Pg ID 500.) The agreement contained a “Scope of the
Agreement” provision, which reads in pertinent part:
This Agreement settles only the allegations in the above-captioned
cases, and does not settle any other cases or matters. It does not
prevent persons from filing charges, the General Counsel from
prosecuting complaints, or the Board and the courts from finding
violations with respect to matters that happened before this
Agreement was approved regardless of whether General Counsel
knew of those matters or could have easily found them out.
(Id. at 3, Pg ID 501.)
5
According to Mr. Shastri, now LGC’s Executive Vice President, LGC
entered into an agreement with Ringo Services, Inc. (“Ringo”), pursuant to which
Ringo performed the DPS work from January 7, 2017 through March 30, 2018.
(Defs.’ Resp. Ex. 1 ¶ 14, ECF No. 41-1 at Pg ID 414; see also id. Ex. 5.) Mr.
Shastri states that in June 2017, he authorized Dan Ringo, Ringo’s President, to
exercise LGC’s right not to renew the CBA. (Defs.’ Resp. Ex. 1 ¶ 17, ECF No. 411 at Pg ID 415.) In an email to Mr. Ringo dated July 3, 2017, Mr. Shastri wrote:
I recall you sent a mail/letter to Jim Arini notifying intent [sic] not to
renew CBA after expiry on August 12th, 2017 ……… please confirm
you sent the notice by certified/registered mail as required by article
XXXVII of CBA. The clause required 60 day notice.
(Id. Ex. 6, ECF No. 41-6 at Pg ID 521.) Mr. Ringo responded on the same date: “It
was sent.” (Id.)
In fact, Mr. Ringo sent a letter to Jim Arini, Local 324’s Business
Representative, which stated:
Ringo Services will exercise its rights under Article XXXVII of the
Collective Bargaining Agreement and hence said rights will be
executed according to Article XXXVII of the current labor agreement.
(Pls.’ Reply Ex. 1, ECF No. 42-2.) The letter is dated June 26, 2017. (Id.)
From April through June 2018, LGC employed its own personnel to work on
the DPS contract. (Id. ¶ 15, Pg ID 415.) LGC did not make contributions to
Plaintiffs’ funds pursuant to the CBA during this period or thereafter because,
according to Mr. Shastri, the CBA had long since expired. (Id. Ex. 1 ¶ 15, ECF
6
No. 41-1 at Pg ID 415.) Mr. Shastri provides that LGC treated all of its employees
as non-union employees during this period and offered them benefits options
available to non-union employees. (Id. ¶ 18, Pg ID 416.) He further provides that
Local 324 continuously pressured LGC to sign a new CBA during this period. (Id.
¶ 19, Pg ID 416.)
According to his declaration, Mr. Rachmale is an officer of LGC. (Defs.’
Resp. Ex. 7, ECF No. 41-7 at Pg ID 523.) However, when asked to list each and
every officer and/or director of LGC, and the office that each holds or has held for
the past three years, Defendants answered: “As a limited liability company, [LGC]
does not have officers or directors.” (Pls.’ Mot. Ex. D at 7, ECF No. 36-5 at Pg ID
336.) In response to Plaintiffs’ Interrogatory No. 4, asking Defendants to state Mr.
Rachmale’s duties and responsibilities with LGC, Defendants responded: “Avinash
Rachmale’s responsibility is to sign checks on behalf of the entity. He is not
involved in the management of the entity.” (Id. at 5, Pg ID 334.) Plaintiffs’
Interrogatory No. 5 asked:
Please state the name, job title and job duties of each individual
that makes determinations of what company bills and/or invoices to
pay, including but not limited to the purchase of materials and/or
supplies, and/or the payment of employee benefit contributions to
Plaintiff Funds.
(Id.) Defendants answered: Jinansh Shah, Account Executive, and Neetu Khullar,
Senior Accountant. (Id. at 6, Pg ID 335.)
7
On December 5, 2017, Plaintiffs filed this lawsuit against LGC and Mr.
Rachmale. Plaintiffs assert the following claims in an Amended Complaint filed
January 11, 2019: (I) against LGC for breach of the CBA and violations of ERISA;
(II) against Mr. Rachmale for breach of his fiduciary duties in violation of ERISA;
(III) against LGC to hold it liable for contributions due for Tiskono’s employees
under the theory that Tiskono is an alter-ego/single employer of LGC. (Compl.,
ECF No. 34.) Pursuant to a Scheduling Order entered initially in this matter on
April 26, 2108,3 and amended on July 12, 2018 and again on August 13, 2018, the
deadline for discovery was December 12, 2018. Plaintiffs filed the pending motion
for partial summary judgment on February 11, 2019.
During the pendency of this action, Plaintiffs’ auditor completed audits
based on records provided by LGC. According to letters from the auditor to LGC,
dated February 11, 2019, the following contributions are owed for the periods
October 2015 to January 2016 and April through June 2018: (a) Annuity Fund:
$22,330.21; (b) Training Fund: $7,443.41; (c) Pension Fund: $66,990.61; and (d)
Health Care Fund: $175,703.50. (Pls.’ Mot. Ex. B, ECF No. 36-3.) In addition to
3
There is a significant delay between the initiation of this lawsuit and the initial
scheduling order because defendants did not timely respond to Plaintiffs’
complaint and thus Plaintiffs moved for Clerk’s entries of default and then default
judgment. Only after the Court scheduled a hearing on Plaintiffs’ motion for
default judgment did Defendants’ counsel enter his appearance. The parties
thereafter stipulated to an order withdrawing the motion for default judgment and
setting aside the Clerk’s entries of default. (See ECF No. 16.)
8
the $272,467.73 in unpaid contributions, the audit results list the liquidated
damages due (i.e., 10% of the outstanding contributions) and the cost of the audits.
(Id.)
Applicable Standard of Review
Plaintiffs seek partial summary judgment under Rule 56 of the Federal Rules
of Civil Procedure. Summary judgment pursuant to Rule 56 is appropriate “if the
movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The
central inquiry is “whether the evidence presents a sufficient disagreement to
require submission to a jury or whether it is so one-sided that one party must
prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52
(1986). After adequate time for discovery and upon motion, Rule 56 mandates
summary judgment against a party who fails to establish the existence of an
element essential to that party’s case and on which that party bears the burden of
proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The movant has the initial burden of showing “the absence of a genuine
issue of material fact.” Id. at 323. Once the movant meets this burden, the
“nonmoving party must come forward with specific facts showing that there is a
genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986) (internal quotation marks and citation omitted). To
9
demonstrate a genuine issue, the nonmoving party must present sufficient evidence
upon which a jury could reasonably find for that party; a “scintilla of evidence” is
insufficient. See Liberty Lobby, 477 U.S. at 252. The court must accept as true the
non-movant’s evidence and draw “all justifiable inferences” in the non-movant’s
favor. See Liberty Lobby, 477 U.S. at 255.
“A party asserting that a fact cannot be or is genuinely disputed” must
designate specifically the materials in the record supporting the assertion,
“including depositions, documents, electronically stored information, affidavits or
declarations, stipulations, admissions, interrogatory answers, or other materials.”
Fed. R. Civ. P. 56(c)(1). Notably, the trial court is not required to construct a
party’s argument from the record or search out facts from the record supporting
those arguments. See, e.g., Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479-80
(6th Cir. 1989) (“the trial court no longer has a duty to search the entire record to
establish that it is bereft of a genuine issue of material fact”) (citing Frito-Lay, Inc.
v. Willoughby, 863 F.2d 1029, 1034 (D.C. Cir. 1988)); see also InterRoyal Corp. v.
Sponseller, 889 F.2d 108, 111 (6th Cir. 1989), cert. denied 494 U.S. 1091 (1990)
(“A district court is not required to speculate on which portion of the record the
nonmoving party relies, nor is it obligated to wade through and search the entire
record for some specific facts that might support the nonmoving party’s claim.”).
The parties are required to designate with specificity the portions of the record
10
such that the court can “readily identify the facts upon which the . . . party
relies[.]” InterRoyal Corp., 889 F.2d at 111.
Applicable Law and Analysis
LGC’s Liability for Unpaid Contributions
Pursuant to ERISA, an employer is obligated to make contributions to
multiemployer plans according to the terms and conditions of the CBA to which
the employer is a signatory. 29 U.S.C. § 1145. This includes the terms and
conditions of the plans incorporated within the CBA. See Bakery & Confectionary
Union and Indus. Int’l Health Benefits & Pension Funds v. New Bakery Co., 133
F.3d 955, 959 (6th Cir. 1998). Trustees of the funds to which the employer is
obligated to make contributions are authorized to enforce this requirement as
fiduciaries. See 29 U.S.C. § 1132(a)(3).
ERISA requires employers to “… maintain records with respect to each of
his employees sufficient to determine the benefits due or which may become due to
such employees.” 29 U.S.C. § 1059(a). If the employer fails to maintain adequate
records to determine the amount of work for which contributions are due under a
CBA, it is the employer’s burden to prove that work performed by its employees
was covered or not covered. Mich. Laborers’ Health Care Fund v. Grimaldi
Concrete, 30 F.3d 692, 695-96 (6th Cir. 1994) (citations omitted). In Grimaldi
Concrete, the funds’ auditor could not determine the amount of work for which
11
contributions were due under the CBAs because the employer’s records failed to
specify the hours employees spent performing covered work. Id. at 694-95. The
Sixth Circuit affirmed the district court’s holding that “‘the penalty must fall upon
the person who had the legal responsibility to maintain those records’” and
therefore the employer was liable “for all contributions on all hours worked during
a period in which it has been demonstrated that some covered work was
performed.” Id. at 695, 697.
In a civil action to recover unpaid contributions, ERISA grants courts the
authority to award a plan:
(A) the unpaid contributions,
(B) interest on the unpaid contributions,
(C) an amount equal to the greater of—
(i) interest on the unpaid contributions, or
(ii) liquidated damages provided for under the plan in an
amount not in excess of 20 percent (or such higher percentage as may
be permitted under Federal or State law) of the amount determined by
the court under subparagraph (A),
(D) reasonable attorney’s fees and costs of the action, to be paid by
the defendant, and
(E) such other legal or equitable relief as the court deems appropriate.
12
29 U.S.C. § 1132(g)(2). The Sixth Circuit has held that § 1132(g)(2)’s language is
mandatory upon judgment in favor of a plan. Mich. Carpenters Council Health &
Welfare Fund v. C.J. Rogers, Inc., 933 F.2d 376, 388 (6th Cir. 1991).
Defendants contend that LGC is not liable for additional contributions for
the October 2015-January 2016 period, even though the audit results reflect a
balance of $23,413.30 for that period. According to Mr. Shastri, “LGC’s records
show that [it] did pay fringe benefits from October 2015-Jaunary 2016[.]” (Defs.’
Resp. Ex. 1 ¶ 13, ECF No. 41-1 at Pg ID 414.) Mr. Shastri further declares that the
funds did not claim contributions were owing for that period prior to filing this
lawsuit. Defendants maintain that the March 2017 settlement in the NLRB action
satisfied any contributions due from LGC prior to the date of the settlement.
As set forth in the preceding section, the charged parties (including LGC)
agreed in the NLRB settlement “to make retirement, annuity, and training fringe
benefit fund contributions in the amount of $324,600 to satisfy the parties’
collective-bargaining agreement, and comply with the contractual provisions
requiring continued fringe benefit fund contributions.” (Defs.’ Resp. Ex 4 at 2,
ECF No. 41-4 at Pg ID 500.) It is not clear from the agreement what period these
payments covered; however, the complaint filed with the NLRB alleged only that
the charged parties failed to make contributions “[s]ince about February 2016[.]”
(Id. Ex. 3 ¶ 18, ECF No. 41-3 at Pg ID 488.) Moreover, the “Scope of the
13
Agreement” provision expressly states that it “settles only the allegations in the
above-captioned cases, and does not settle any other cases or matters.” (Id. Ex. 3
at 2, ECR No. 41-4 at Pg ID 500.) The provision further states that the agreement
“does not prevent persons from filing charges” or “the courts from finding
violations with respect to matters that happened before this Agreement was
approved ….” (Id., emphasis added.)
As such, the plain terms of the agreement do not reflect the parties’ intent to
foreclose other actions to recover fringe benefit contributions owed for a period
prior to March 2017. Plaintiffs were not parties to the NLRB action. They argue
in their reply brief that “[t]he Funds are not precluded from pursuing the unpaid
contributions because the Union had previously sought some contributions under
the CBA as the ‘funds often are not in a position to know what is going on between
the employer and the union, and the union may have interests that differ from or
are inimical to the funds’ interests.’” (Pls.’ Reply Br. at 2, ECF No. 42 at Pg ID
596, quoting Laborers’ Pension Trust Fund-Detroit & Vicinity v. Rocwall Co., 357
F. App’x 638, 640 (6th Cir. 2009).)4 It is well-established under Sixth Circuit
4
The issue in Rocwall was whether the employer could assert the CBA’s 90-day
time limit for the union to make claims of delinquent contributions as a defense in
a fringe benefit collection action filed by the trustees of various fringe benefit plans
to which the employer was obligated to make contributions under the CBA. 357 F.
App’x at 638. The Sixth Circuit held that the employer could not raise a contract
defense pertaining to the union’s conduct against the ERISA funds. Id. at 640-41.
14
precedent that multiemployer plans like Plaintiffs are entitled to “rely upon the
terms of collective bargaining agreements and plans as written” irrespective of “the
actual intent of and understandings between the contracting parties” or any
defenses the contracting employer may have against the union. New Bakery Co. of
Ohio, 133 F.3d at 959; see also Orrand v. Scassa Asphalt, Inc., 794 F.3d 556, 563
(6th Cir. 2015) (restating this well-established rule and explaining that the only
“narrow exception” is for conduct that could support a claim for fraud in the
execution of the contract).
Defendants assert that “the Union undeniably was looking for instances of
unpaid fringe benefits arising from this Project[]” during the NLRB action and that
“it found none[.]” (Id. at 9, ECF no. 41 at Pg ID 393.) Defendants argue that this
is “strong circumstantial evidence that fringe benefits were paid for that time.”
(Id.) Defendants, however, present no evidence to show that the Union was in fact
looking for unpaid contributions for any period not alleged in the NLRB complaint
(in other words, for periods prior to February 2016) or that it found no
contributions owed for any other period. Defendants’ assertions are purely
speculative. Moreover, Defendants do not explain how the Union’s actions and/or
findings bind Plaintiffs here.
Defendants have not presented evidence suggesting that the NLRB
settlement agreement included or was intended to include the unpaid contributions
15
Plaintiffs now seek for the October 2015-January 2016 period. Mr. Shastri states
that LGC’s records reflect that it “did pay fringe benefits [for that period.]” This,
however, is not evidence that LGC made all fringe benefit contributions owed
between those dates. And while Mr. Shastri also states that Plaintiffs never
previously claimed that contributions were owing for the above period, Defendants
do not argue that Plaintiffs are barred from now seeking those contributions
because they did not previously assert a claim for the money. Defendants do not
argue that the claim is time-barred or foreclosed under the claim preclusion
doctrine.
For these reasons, Defendants fail to present evidence to create a material
issue of fact with respect to LGC’s obligation to pay contributions owing for the
period from October 2015-January 2016.5 Defendants nevertheless argue that if
LGC is liable for unpaid contributions for this period, it is not liable in the amounts
set forth in the audit results submitted by Plaintiffs. (Defs.’ Reply Br. at 10, citing
Mich. Laborers’ Pension Fund v. Rite Way Fence, Inc., No. 13-cv-13727, 2015
5
Notably, at the motion hearing, Plaintiffs’ counsel assured the Court that
Plaintiffs are not seeking to collect contributions here that were previously paid by
the parties to the NLRB action. As will be discussed further infra, while the Court
is granting summary judgment to Plaintiffs and against LGC on the issue of
liability for unpaid contributions, it is reserving its decision on the amount of the
contributions owed until a later date. As such, the parties will have another
opportunity to explore whether any contributions LGC paid pursuant to the NLRB
settlement include contributions the audit reflects are still owed.
16
WL 1885542 (E.D. Mich. Apr. 24, 2015).) Defendants assert: “Taking the
evidence in the light most favorable to Defendants, there is a genuine issue of fact
as to Plaintiffs’ entitlement to the amounts claimed in their audit for the period of
October 2015-January 2016.” (Id.) It is unclear what evidence Defendants believe
they have offered to create an issue of fact as to the amounts due, however.
Defendants do not point to any errors in the auditors’ calculations. The only
challenges they raise to the audit are the liquidated damages sought and that it
includes work performed by Darrel Cizek, Jr. who Mr. Shastri states was a
supervisor only and never worked as a stationary engineer or boiler operator.
(Defs.’ Reply Br. at 7, ECF No. 41 at Pg ID 391.) Defendants’ own records,
however, use the same code to identify Mr. Cizek as the boiler operator and plan
engineer. (Pls.’ Reply Ex. 4, ECF No. 42-5 at Pg ID at 626.)
With respect to Plaintiffs’ entitlement to liquidated damages, as set forth
above and as Defendants in fact acknowledge (see Defs.’ Resp. Br. at 15, ECF No.
41 at Pg ID 399), ERISA authorizes a court to award liquidated damages to a plan
as “provided for under the plan[.]”6 29 U.S.C. § 1132(g)(2)(C), emphasis added.
The CBA expressly incorporates the funds’ Plan and Trust documents. Those
documents empower the trustees “to impose a reasonable cost of collection
6
Under the statute, liquidated damages cannot exceed 20% of the amount due. See
29 U.S.C. § 1132(g). Plaintiffs seek liquidated damages at a rate of 10% of the
amounts due. (See Pls.’ Mot. Ex B, ECF No. 36-3.)
17
assessment upon a delinquent Employer, in the nature of liquidated damages ….”
(Pls.’ Mot. Ex. G at 9, ECF No. 36-8 at Pg ID 362.)
The Plan and Trust documents attached to Plaintiffs’ supplemental
submission further reflect that they are entitled to liquidated damages equal to at
least ten percent (10%) of the unpaid contributions. Because those documents are
expressly incorporated into the CBA, the employer agreement does in fact include
a liquidated damages provision. Therefore, the Court concludes that Plaintiffs are
entitled to liquidated damages on the unpaid contributions eventually found to be
due and owing.
With respect to the amounts due and owing, Defendants maintain that they
have not had the opportunity to properly review and test the audit. According to
Defendants, they did not receive the audit results until Plaintiffs filed their
summary judgment motion. Therefore, if the Court finds no genuine factual
dispute that Defendants owe unpaid contributions for the October 2015-January
2016 period, they ask for additional time to conduct discovery under Federal Rule
of Civil Procedure 56(d). (Defs.’ Resp. Br. at 10, ECF No. 41 at Pg ID 394.)
Defendants offer an affidavit pursuant to Rule 56(d) from their attorney,
Don Blevins, who states that because Plaintiffs’ complaint did not specify the time
periods for which they were claiming unpaid benefits, he was surprised to find
amounts for a period preceding the NLRB settlement included in the audit results.
18
(Id. Ex. 8 ¶ 5, ECF No. 41-8 at Pg ID 526-27.) Mr. Blevins further states that
defense counsel has “engaged in an extensive effort to find payroll records from
October 2015-January 2016” to “determine the accuracy of Plaintiffs’ audit for that
time period.” (Id. ¶ 6, Pg ID 527.) According to Mr. Blevins, “Defendants require
additional discovery of the documentation supporting Plaintiffs’ audit in order to
fully address the audit’s findings . …” (Id. ¶ 7, Pg ID 527.) In its supplemental
filing, Defendants identify the specific additional discovery they seek. (Defs.’
Supp. at 7-8, ECF No. 48 at Pg ID 817-18.)
At the motion hearing, Plaintiffs’ counsel indicated that Plaintiffs do not
“strongly oppose” Defendants’ request for additional discovery. The Court in fact
believes that additional discovery is needed, particularly to determine precisely
what amounts LGC paid pursuant to the NLRB settlement and to which funds, so
as to avoid the double dipping Plaintiffs indicate they also want to avoid.
Moreover, Defendants’ contention that they lacked notice before receiving the
audit results that contributions would be sought in this action for a period prior to
the NLRB settlement is not unreasonable. Notably, Plaintiffs’ pleadings (including
the Amended Complaint filed after the pending summary judgment motion was
filed) do not identify the period(s) for when Plaintiffs were claiming contributions
were due pursuant to the CBA. (See ECF Nos. 1, 43.) Defendants also should
have the opportunity to fully review the numbers in the audit results.
19
Defendants also claim that LGC is not liable for unpaid contributions for the
period from April-June 2018 because the CBA had already expired. Although
recognizing that the CBA automatically renewed annually after August 12, 2017
absent termination notice by either party, Defendants argue that such notice was
provided through Mr. Ringo. Defendants’ evidence, however, does not show that
Mr. Ringo timely exercised LGC’s right to terminate the CBA.
According to its express terms, written notice of a party’s intent to terminate
the CBA had to be sent to the other party via registered or certified mail “at least
sixty (60) days prior to any anniversary date of th[e] Agreement.” As relevant to
the current dispute, that deadline was June 13, 2017. The email Defendants
present to show that the CBA was terminated in 2017, is dated July 3, 2017, and is
between Mr. Ringo and Mr. Shastri. (Defs.’ Resp. Br. Ex. 6, ECF No. 41-6.)
Plaintiffs introduce the actual letter Mr. Ringo sent to the union’s representative,
which is dated almost two weeks after the June 13 deadline. (Pls.’ Reply Ex. 1,
ECF No. 42-2.) Moreover, as Plaintiffs point out, there is no evidence that the
letter was sent via registered or certified mail.
At the motion hearing, Defendants additionally argued that Plaintiffs should
be estopped from seeking contributions after August 12, 2017 because: (1) the
Union never responded to Mr. Ringo’s letter to point out that it was ineffective to
terminate the CBA; (2) the Union subsequently persuaded LGC to enter into a new
20
CBA; and (3) LGC thereafter treated its Union employees as regular employees by
inter alia providing them fringe benefits directly. The conduct on which
Defendants rely, however, is attributable to only the Union and not Plaintiffs. As
discussed earlier, Sixth Circuit precedent establishes that, with limited exception
not applicable here, an employer cannot raise a defense arising from the union’s
conduct against the ERISA funds. See supra.
Defendants therefore do not create a genuine issue of material fact with
respect to LGC’s liability for unpaid contributions for the April-June 2018 period,
either.
Mr. Rachmale’s Liability for Unpaid Contributions
Plaintiffs assert that Mr. Rachmale is jointly and severally liable for LGC’s
unpaid contributions for the periods at issue as an ERISA fiduciary.
Under ERISA, “[a]ny person who is a fiduciary with respect to a plan who
breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries
…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(a). ERISA defines a
fiduciary, in relevant part, as any person who “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, … [or]
21
has any discretionary authority or discretionary responsibility in the administration
of such plan.” 29 U.S.C. § 1002(21)(A)(i), (iii).
The Sixth Circuit “employs a functional test to determine fiduciary status.”
Briscoe v. Fine, 444 F.3d 478, 486 (6th Cir. 2006) (citing Hamilton v. Carell, 243
F.3d 992, 998 (6th Cir. 2001)) (observing that “[t]he Supreme Court has
recognized that ERISA ‘defines ‘fiduciary’ not in terms of formal trusteeship, but
in functional terms of control and authority over the plan …’”). A party’s status as
a fiduciary “‘is not an all or nothing concept’”; a court must ask whether the person
is a fiduciary “‘with respect to the particular activity in question.’” Id. (quoting
Moench v. Robertson, 62 F.3d 553, 561 (3d Cir. 1995)). The question of whether
an individual is a fiduciary under ERISA is a mixed question of law and fact. Id.
(citing Hamilton v. Carell, 243 F.3d 992, 997 (6th Cir. 2001)).
With respect to a person’s “authority or control respecting management or
disposition of [plan] assets,” ERISA does not define when funds become “plan
assets” and the Sixth Circuit has yet to consider when unpaid benefit contributions
become plan assets. See Trustees of the Operating Eng’rs Local 324 v. Glencorp,
Inc., 178 F. Supp. 3d 600, 607 (E.D. Mich. 2016). Some Circuit Courts and judges
in this District, however, have held that pension and welfare benefit fund
contributions become plan assets as soon as they are “due and owing.” Id. at 607-
22
08 (citing cases); see also In re Bucci, 493 F.3d 635, 642 (6th Cir. 2007) (assuming
without deciding that unpaid employer contributions are ERISA plan assets).7
Plaintiffs rely on two facts to establish that Mr. Rachmale is personally
liable for the unpaid contributions as an ERISA fiduciary: (1) he signs checks on
behalf of LGC and (2) he borrowed assets from LGC for personal use as evidenced
by a 2017 loan. Plaintiffs rely on Defendants’ Answers to Interrogatories 4 and 6
as the supporting evidence for these factual assertions. (See Pls.’ Mot. Ex. E at 45, ECF No. 36-6 at Pg ID 346-47.) Plaintiffs argue that “[t]his evidence shows that
[Mr. Rachmale] had control over the assets of LGC Global, assets that belong to
the Fund.” (Pls.’ Br. in Supp. of Mot. at 13, ECF No. 36 at Pg ID 289.)
Defendants argue in response that this evidence is insufficient to show that
Mr. Rachmale was responsible for making contributions to the funds or exercised
control over the disposition of plan assets. Alternatively, Defendants contend that
there is a genuine issue of material fact with regard to whether Mr. Rachmale was
clearly aware of his status as a fiduciary. Because the Court concludes that
7
The Eleventh Circuit has held that unpaid employer contributions are not
“plan assets” unless specific and clear language in the plan documents or other
evidence so indicates. ITPE Pension Fund v. Hall, 334 F.3d 1011, 1013-14 (11th
Cir. 2003). The health care plan documents here provide that “[c]ontributions
become vested Plan assets at the time they become due and owing to the Fund.”
(Pls.’ Mot. Ex. G at 2, ECF No. 36-8 at Pg ID 355.)
23
Plaintiffs present insufficient evidence to show that Mr. Rachmale acted as an
ERISA fiduciary, it declines to address Defendants’ alternative argument.
The Sixth Circuit’s decision in Briscoe reflects that an individual with power
to write checks on a plan account is an ERISA fiduciary regardless of whether the
individual exercised discretionary authority or control. 444 F.3d at 493-94. In
Briscoe, the Sixth Circuit found that the third-party administrator of a company’s
healthcare plan qualified as an ERISA fiduciary because it collected COBRA
payments from former employees, paid out claims approved by the company from
plan assets, and disposed of the remaining funds in the plan bank account
(including keeping some of the money as an administrative fee) when it cancelled
its administrative contract with the company. Id. at 490-91. The Sixth Circuit
relied on cases from the Second, Ninth, and Tenth Circuits to support its holding.
Id. at 492-94 (citing IT Corp. v. Gen. Am. Life Ins. Co., 107 F.3d 1415 (9th Cir.
1997); LoPresti v. Terwilliger, 126 F.3d 34 (2d Cir. 1997); David P. Coldesina,
D.D.S. v. Estate of Simper, 407 F.3d 1126 (10th Cir. 2005). Neither Briscoe nor
the cases on which it relies for its holding support the conclusion that an individual
is an ERISA fiduciary simply because he or she has the authority to write checks
on the employer’s general account.
The Second Circuit’s decision in LoPresti most clearly demonstrates this. In
that case, two brothers were the sole shareholders and officers of a company that
24
was obligated under a collective bargaining agreement to deduct contributions
from its employees’ paychecks to fund benefit and pension plans. LoPresti, 126
F.3d at 37. Those deductions were deposited into the company’s general account.
Id. When the company began to experience financial difficulties, the money in the
account was used to pay off other creditors, leaving the plans with insufficient
funds. Id. The brothers were the only signatories on the account, but the Second
Circuit concluded that only one of them was an ERISA fiduciary. Id. at 40-41.
That brother, Donald, signed checks on the account, including checks
payable to the funds, and “[o]f equal if not more import … had a role in
determining which bills to pay, in that he decided which creditors were to be paid
out of the [c]ompany’s general account (which, during the relevant time frame,
included employee Fund contributions), and when those creditors were paid.” Id.
at 40 (brackets added). The court held that Donald was an ERISA fiduciary,
reasoning that his “commingling of plan assets with the Company’s general assets,
and his use of those plan assets to pay Company creditors, rather than forwarding
the assets to the Funds means that he exercise[d] … authority or control respecting
… disposition of [plan] assets[.]’” Id. (quoting 29 U.S.C. § 1002(21)(A)(i)). The
Second Circuit cited three decisions in support of this conclusion: Yeseta v. Baima,
837 F.2d 380 (9th Cir. 1988) (an employee in charge of plan administration and
who, at the direction of company principals, withdrew plan assets, and placed those
25
assets in the company’s account to pay “necessary operating expenses” held
personally liable as a fiduciary under ERISA); Connors v. Paybra Mining Co., 807
F. Supp. 1242, 1246 (S.D.W. Va. 1992), appeal dismissed, 21 F.3d 421 (4th Cir.
1993) (company officers and directors exercised authority or control respecting
management or disposition of plan assets, and thus were ERISA fiduciaries, where
they made “personal, conscious choices” to use withheld employee contributions to
cover company expenses); Reich v. Cook, 94cv2069, slip op. at 10-11 (D. Conn.
Mar. 24, 1997) (defendants fell within the ambit of section 1002(21)(A) where,
even though other employees processed checks for their signature, they were the
only signatories on the corporate account, and they “retained the authority to
instruct those employees as to what checks to process and what monies were to be
paid out[]”).
Conversely, the Second Circuit in LoPresti found that the other brother,
John, “did not exercise authority or control regarding the disposition of plan
assets,” and thus was not personally liable as a fiduciary under ERISA. 126 F.3d.
at 40-41. The court reasoned:
Even though he was authorized to sign checks on the Company’s
account and he had some general knowledge that deductions were
made from employees’ wages . . . he was “primarily” a “production”
person with “no responsibility for determining which of the
company’s creditors would be paid or in what order.”
26
Id. (brackets omitted). More recently, citing the same lack of involvement in
decisions about the priority of creditors and bills to pay, the Second Circuit
concluded that an officer of a corporation with check writing authority did not
engage in or have the authority to engage in activities that would make him a
fiduciary under ERISA. Finkel v. Romanowicz, 577 F.3d 79, 86-87 (2009).
The Tenth Circuit also relied on the distinction between individuals who are
signatories in name only and those with authority to direct when and how
payments are made when assessing ERISA fiduciary status in David P. Coldesina,
D.D.S. 407 F.3d at 1133-34. The court explained,
any authority or control over plan assets is sufficient to render
fiduciary status. As such, acting as a signatory on behalf of a plan can
indicate fiduciary control. See IT Corp., 107 F.3d at 1421-22 (“The
right to write checks on plan funds is ‘authority or control respecting
management or disposition of assets.’”) … However, performing this
function in name only is likely insufficient. See LoPresti, 126 F.3d at
40 ….
David P. Coldesina, D.D.S., 407 F.3d at 1133 (emphasis in original, additional
citation omitted). The court concluded that an accountant who received
contribution funds from the plan, which he deposited into his business account, and
then wrote checks on behalf of the plan for the amount of the contributions was an
ERISA fiduciary because he “had total control over the plan’s money while it was
in his account.” Id. (emphasis added). He had “‘the authority to direct payment of
[the] plan’s money . . ..’” Id. at 1134 (quoting IT Corp., 107 F.3d at 1421).
27
Plaintiffs have not presented evidence to show that Mr. Rachmale had any
role in deciding or directing who to pay from LGC’s business account or when to
make payments from that account. Plaintiffs only show that Mr. Rachmale signed
some checks on behalf of LGC, including a single check to one of the plaintiff
funds. (See Pls.’ Reply Ex. 7, ECF No. 42-8 at Pg ID 673.) While the evidence
reflects that Mr. Rachmale borrowed money from the company, Plaintiffs have not
shown that he was involved in deciding that the loan should be made. As such,
Plaintiffs fail to show that he was anything more than a signatory in name only.
See David P. Coldesina, D.D.S., 407 F.3d at 1133.
Therefore, the Court is denying summary judgment to Plaintiffs with respect
to Mr. Rachmale’s personal liability for the unpaid contributions.
Plaintiffs’ Request for an Audit
In their motion for partial summary judgment, Plaintiffs also ask the Court to
order Defendants to make LGC’s books and records available for an audit to
determine whether additional contributions are due for periods not covered in the
previous audit—in other words, for the period beginning January 2016. Plaintiffs
rely on the terms of the CBA and ERISA as support for this request. The trust
documents (which are expressly incorporated into the CBA) require LGC to
provide all of its records upon the trustees’ request to enable the trustees to conduct
audits to determine the amount of contributions due. (See, e.g., Pls.’ Mot. Ex. G
28
Art. VII § 9, ECF No. 36-8 at Pg ID 362); see also Central States v. Central
Transport, 472 U.S. 559 (1985) (finding similar language in trust documents
consistent with ERISA’ policies).
In their response brief, Defendants do not dispute Plaintiffs’ entitlement to
an audit. Defendants do contend, however, that they already fully complied with
Plaintiffs’ requests for LGC’s records and that Plaintiffs already conducted their
audits (or had a full opportunity to do so). Defendants argue that Plaintiffs are
“seek[ing] to expand discovery in perpetuity” by requesting additional audits and
are attempting “to audit periods of time long after LGC’s employees have stopped
doing the work on the Project, at least not without some justification.” (Defs.’
Resp. Br. at 24-25, ECF No. 41 at Pg ID 409.)
It is not clear why Plaintiffs did not previously conduct the audit they now
seek to perform. It also is not clear what specific time period(s) Plaintiffs seek to
explore in an additional audit. However, to the extent Plaintiffs have a reasonable
basis for believing that covered work was done in any period for which
contributions may be owing and for which an audit was not previously completed,
they are entitled to their requested relief because the plain language of the CBA
empowers the funds to request an employer’s records and to conduct an audit.
29
Conclusion
For the reasons stated above, the Court concludes that Plaintiffs are entitled
to summary judgment with respect to LGC’s liability for fringe benefit
contributions owed for the periods October 2015-January 2016 and April 2018June 2018. Plaintiffs have not met their burden to show that Mr. Rachmale is
liable as an ERISA fiduciary for any unpaid contributions.
Because the Court believes that Defendants should be allowed additional
discovery in connection with the audit results and the amount of contributions due
for those periods, only, it declines to award Plaintiffs the amount sought pursuant
to 29 U.S.C. § 1132(g)(2). Plaintiffs, however, are entitled to liquidated damages
on whatever amounts are eventually found to be due and owing.
Accordingly,
IT IS ORDERED that Plaintiffs’ motion for partial summary judgment
(ECF No. 36) is GRANTED IN PART AND DENIED IN PART.
IT IS FURTHER ORDERED that Plaintiffs’ motion to strike Defendants’
supplemental brief (ECF No. 49) is DENIED.
IT IS FURTHER ORDERED that discovery is extended for an additional
thirty (30) days, but only with respect to the issues set forth herein.
s/ Linda V. Parker
LINDA V. PARKER
U.S. DISTRICT JUDGE
Dated: September 27, 2019
30
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?