Demopoulos et al v. Whelan et al
Filing
130
MEMORANDUM OPINION AND ORDER re: 98 MOTION for Summary Judgment . filed by Local 553, I.B.T., 121 CROSS MOTION for Summary Judgment . filed by Local 803 Health and Welfare Fund, Local 803 Pension Fund, Wimal Ariyawans a, Sharika Gordon, 113 MOTION to Strike Document No. [Certain of Defendants' Responses to Plaintiff's 56.1 Statement and Accompanying Exhibits] . filed by Local 553, I.B.T. The Court GRANTS the Union's motion for summ ary judgment and DENIES Defendants' cross-motion for summary judgment. (Additionally, the Union's motion to strike and motion to amend, see ECF No. 124 at 24 n.26, are also denied as moot.) No later than one week from the date of this Opi nion and Order, the Union shall confer with Defendants and submit a proposed Judgment consistent with this Opinion and Order. The Clerk of Court is directed to terminate ECF Nos. 98, 113, and 121. SO ORDERED. (Signed by Judge Jesse M. Furman on 9/13/19) (yv) Transmission to Orders and Judgments Clerk for processing.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------------- X
:
LOCAL 553, I.B.T.,
:
:
Plaintiff,
:
:
-v:
:
LOCAL 803 PENSION FUND, LOCAL 803 HEALTH :
AND WELFARE FUND, SHARIKA GORDON, as
:
Trustee of the Local 803 Pension Fund and Health and
:
Welfare Fund, and WIMAL ARIYAWANSA, as Trustee :
of the Local 803 Health and Welfare Fund,
:
:
Defendants.
:
:
---------------------------------------------------------------------- X
17-CV-5823 (JMF)
MEMORANDUM OPINION
AND ORDER
JESSE M. FURMAN, United States District Judge:
In this action, general familiarity with which is assumed, Plaintiff Local 553, I.B.T. (the
“Union”) brings suit under the Employee Retirement Income Security Act of 1974 (“ERISA”),
29 U.S.C. §§ 1001 et seq., against the Local 803 Pension Fund, the Local 803 Health and
Welfare Fund (collectively, the “Funds”), and two individual trustees of the Health and Welfare
Fund. See ECF No. 42 (“Am. Compl.”). The Union seeks a declaratory judgment that two
provisions of the agreements that govern the Funds violate ERISA and an order permanently
enjoining Defendants from enforcing them. Id. at 13-14 (Prayer for Relief). The first of the
provisions — the “Cause Provision” — limits the ability to remove a Fund trustee for anything
other than “[c]ause,” defined, in turn, as the “failure to attend more than two consecutive
meetings unless excused by bona fide medical reasons, or gross dereliction or disregard of
fiduciary responsibilities.” ECF No. 104-13, at 6; ECF No. 104-14, at 6. The second, the
“Participation Provision,” provides that no person is eligible for appointment as a Fund trustee
“unless that individual is a current or past employee of an employer that contributed on behalf of
its employees to” the Funds. ECF No. 104-13, at 6; ECF No. 104-14, at 6. The crux of the
Union’s argument is that each of these Provisions violates ERISA by unlawfully entrenching the
existing trustees, thereby interfering with the exercise of the Union’s fiduciary duties.
In an earlier Opinion, the Court granted a preliminary injunction barring Defendants (or,
more precisely, their predecessors) from enforcing the Cause Provision, but declined to enjoin
enforcement of the Participation Provision. See Demopoulos v. Whelan, No. 17-CV-5823 (JMF),
2017 WL 4233081 (S.D.N.Y. Sept. 25, 2017). The Court noted that, under ERISA, an employee
benefit plan fiduciary “must ‘discharge his duties with respect to a plan solely in the interest of
the participants and beneficiaries’; act ‘for the exclusive purpose of . . . providing benefits to
participants and their beneficiaries[] and . . . defraying reasonable expenses of administering the
plan’; and comport ‘with the care, skill, prudence, and diligence’ of a prudent person under the
circumstances.” Id. at *2 (quoting 29 U.S.C. § 1104(a)(1)(A), (B)). “In general,” the Court
explained, “‘trust agreements that excessively protect fund trustees from removal violate [these]
fiduciary mandates of ERISA because they insulate trustees from responsibility for failure to
carry out their fiduciary duties.’” Id. (quoting Levy v. Local Union Number 810, 20 F.3d 516,
519 (2d Cir. 1994)). “That is true ‘even in the absence of wrongdoing by particular trustees.’”
Id. (quoting Partenza v. Brown, 14 F. Supp. 2d 493, 499 (S.D.N.Y. 1998) (Chin, J.)). The
relevant test of “whether unlawful structural entrenchment exists is whether a fund’s governing
provisions permit the termination of their fiduciaries’ services on reasonably short notice under
circumstances so the plan would not become locked into an arrangement that may become
disadvantageous to the benefit fund.” Id. (internal quotation marks omitted).
2
To the extent relevant here, the Court applied those standards and held that the Union (or,
more precisely, its predecessors) had shown a likelihood of success on the merits with respect to
their claim that the Cause Provision violates ERISA. See id. at *3. The Court noted that the
Cause Provision “limits removal to narrowly delineated circumstances — generally only where a
Trustee has blatantly violated his or her statutory obligations” — and that “[r]un-of-the-mill
disregard of fiduciary responsibilities not rising to ‘gross dereliction,’ not to mention ‘mere
policy disagreement or ineffective leadership,’ are insufficient to constitute ‘cause.’” Id.
(quoting Partenza, 14 F. Supp. 2d at 500). “Such a high bar for removal,” the Court concluded,
“interferes with the principle of ‘easy removal on reasonably short notice,’ and could result in a
situation in which a Trustee might be serving ‘contrary to the wishes of the Fund’s participants
and beneficiaries’” — inconsistent with ERISA’s dictates. Id. (quoting Partenza, 14 F. Supp. 2d
at 500). By contrast, the Court did not address the merits of the challenge to the Participation
Provision because it concluded that the Union’s predecessors had “failed to satisfy their burden
of showing that the Provision, if left in place, would inflict irreparable harm.” Id. at *4. The
Court acknowledged Plaintiffs’ contention that the Participation Provision “runs afoul of the
fiduciary mandates of ERISA because it unduly restricts the universe of people who can serve as
Trustees,” but concluded that “the record,” at that time, did “not support Plaintiffs’ contention”
because the universe of eligible candidates (current and past participants) in each Fund
“appear[ed] to be much larger (2,000 in the case of the Health and Welfare Fund and 900 in the
case of the Pension Fund)” than Plaintiffs suggested. Id.
3
Now, with discovery over, the parties cross-move for summary judgment with respect to
the Union’s challenges to the two Provisions. 1 As a threshold matter, Defendants argue that the
Court should apply different standards than those set forth in its earlier Opinion. First, they
contend that the Court’s analysis should focus on whether their “interpretation” of “the terms of
the plan’s documents” is “arbitrary, capricious, or made in bad faith.” ECF No. 122 (“Defs.’
Opp’n to Pl. Mot.”), at 13. But that standard is incorrect, as the question at issue is whether the
trust agreements violate ERISA as a matter of law, not whether Defendants’ interpretation of
those agreements — for instance, a decision to deny a benefits claim pursuant to their terms — is
reasonable. Cf. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 105, 108-111 (1989)
(deciding the appropriate standard of judicial review for challenges to benefit determinations
under 29 U.S.C. § 1132(a)(1)(B), but “express[ing] no view as to the appropriate standard of
review for actions under other remedial provisions of ERISA”). Along similar lines, Defendants
argue that they acted in a nonreviewable settlor function, rather than a reviewable fiduciary
function, when they “restate[d] the Trust Agreements” by “amending the plans . . . to define the
eligibility of trustees.” Defs.’ Opp’n to Pl. Mot. 16. But that argument also misses the mark, as
the Union’s primary argument is not that the act of restating the relevant trust agreements was
unlawful, but rather that the Cause and Participation Provisions themselves violate ERISA as a
matter of law. Thus, the Court need not consider whether the trustees were authorized to amend
1
In addition, the Union moves to strike Defendants’ Rule 56.1 Counterstatement and
certain evidence. ECF No. 113. Whether or not a motion to strike is filed, “[o]n a motion for
summary judgment, a district court may rely only on material that would be admissible at trial.”
Rubens v. Mason, 387 F.3d 183, 189 (2d Cir. 2004). In deciding an evidentiary question,
therefore, a court may strike improper evidence or submissions. See, e.g., Seife v. Food & Drug
Admin., No. 17-CV-3960 (JMF), 2019 WL 1382724, at *1 (S.D.N.Y. Mar. 27, 2019).
“Alternatively, it may, without granting a motion to strike, simply decline to consider” the
improper evidence or submissions. Id. (internal quotation marks omitted). Here, to the extent
the Court needs to reach the Union’s arguments at all, it takes the latter approach.
4
the trust agreements in the first place. Instead, it must evaluate whether the Provisions
themselves violate ERISA — an inquiry guided by the standards in the Court’s earlier Opinion.
Applying those standards, the Court need not dwell long on the Cause Provision because
discovery has merely confirmed what the Court anticipated in its earlier Opinion: that the Cause
Provision violates ERISA. All of Defendants’ arguments to the contrary are unpersuasive. First,
the factual differences between Partenza and this case do not render the trust agreements here
sufficiently broad to allow for a Trustee’s “termination on reasonably short notice,” as is
required by ERISA. Levy, 20 F.3d at 519. Nor is there any merit to Defendants’ assertion that
the Second Circuit has “found that an indefinite appointment of a fiduciary did not constitute an
appointment for life and thus did not run afoul of ERISA[].” Defs.’ Opp’n to Pl. Mot. 21
(capitalization omitted). Contrary to that assertion, the Second Circuit has upheld amendments
to removal provisions where such amendments “tend[ed] to reduce, not increase, the
opportunities of employee trustees to entrench themselves.” Int’l Bhd. of Teamsters v. New York
State Teamsters Council Health & Hosp. Fund, 903 F.2d 919, 923 (2d Cir. 1990) (emphasis
added) (considering an amendment that both continued existing term limits and expanded the
methods through which a trustee could be removed); see also Liss v. Smith, No. 95-CV-1256
(HB), 1997 WL 139530, at *2 (S.D.N.Y. Mar. 26, 1997) (observing that a trustee was otherwise
removable by a unanimous vote or by a neutral arbitrator). Finally, there is no admissible
evidence in the record suggesting that the Union “concluded that tying its own hands and
restricting its ability to monitor its representatives going forward would be in the best interest of
the Funds and their beneficiaries.” Demopoulos, 2017 WL 4233081, at *3. Defendants invoke
testimony of Joseph Libertelli regarding statements by Fund participants, to the effect that they
added the Cause Provision because “[t]hey wanted to make sure people are held accountable,”
5
ECF No. 119 (“Defs. 56.1 Opp’n”), ¶ 94 (citing ECF No. 104-24, at 86-87), but that testimony is
inadmissible hearsay. And in any event, it makes no sense to say that limiting the power to
remove a Trustee will serve to increase Trustee accountability. Accordingly, and substantially
for the reasons stated in its earlier Opinion, the Court concludes that the Cause Provision
constitutes unlawful structural entrenchment and thus violates ERISA as a matter of law.
Although it presents a closer question, the Court now concludes — with the benefit of
discovery — that the Participation Provision also interferes with the Union’s fiduciary duties and
violates ERISA. In particular, discovery has shown that the universe of active and former
participants in the Funds is much smaller than appeared at the time of the preliminary injunction
proceedings; that participant records are so incomplete and confusing that locating and vetting
candidates from that universe would be extraordinarily time-consuming, costly, and nonproductive; and that the demographics of the participants make it highly unlikely that they would
be willing or able to serve as Trustees. Among other things, the record reveals that:
•
Cynthia Socci, the Funds’ Administrator for over thirty years, conceded that the data —
although complete — was produced in an unfamiliar form and is both “messy and
confusing.” Defs. 56.1 Opp’n ¶ 175 (internal quotation marks omitted); see also id. ¶ 194
(“It’s a mess . . . . I’m a little confused with it . . . . [A]s the administrator, I had a hard
time — you handed me this, and I’m even struggling with what this is . . . . [I]t doesn’t
have a title. It doesn’t tell me anything. I don’t know who prepared it.”).
•
There are zero active participants in the Pension Fund, and only one of the three Pension
Fund documents produced by Defendants, the “Retiree List,” purports to contain
addresses for former participants. Defs. 56.1 Opp’n ¶¶ 181, 202; ECF No. 104-32 (“Ex.
EE”); ECF No. 104-33 (“Ex. FF”); ECF No. 104-34 (“Ex. GG”). Socci, however, did not
know when the addresses on the list were last verified. Defs. 56.1 Opp’n ¶¶ 185-86.
•
The Pension Fund Retiree List includes approximately 370 retirees, but their entries are
mingled with duplicate entries and entries for deceased participants. Defs. 56.1 Opp’n ¶¶
181-84. Further, there is no address information for former participants who will never
receive a pension or for the terminated vested former participants who are entitled to a
pension. Defs. 56.1 Opp’n ¶¶ 181, 193; Ex. EE; Ex. FF; Ex. GG.
6
•
The vast majority of those on the Pension Fund Retiree List who are still alive (296) are
identified as seventy-five years old or older, Defs. 56.1 Opp’n ¶ 190; Ex. GG, and many
live outside the tri-state area, Defs. 56.1 Opp’n ¶ 191. 2
•
There are only 56 active participants and 620 former participants in the Health Fund, and
the Health Fund does not have verified address information for the former participants.
Id. ¶ 220; ECF No. 123-25 at 85:13-21. Socci estimates that eighty percent of the
addresses of former Health Fund participants are incorrect. Defs. 56.1 Opp’n ¶ 219.
•
Of the 620 records listed in the Health Fund census, a substantial number (at least 65) are
seventy-five years old or older. Defs. 56.1 Opp’n ¶ 216; ECF No. 104-36.
The net effect of these circumstances and the Participation Provision is that the Union would be
forced to “navigate” an “elaborate” and “time-consuming” process to find a new Trustee.
Partenza, 14 F. Supp. 2d at 501. That, in turn, would undoubtedly chill the Union from
replacing a Trustee, even if it was dissatisfied with the Trustee. Put differently, when considered
in light of the record, the Participation Provision would not “permit the termination of [the
Funds’] fiduciaries’ services on reasonably short notice under circumstances so the plan would
not become locked into an arrangement that may become disadvantageous to the benefit fund.”
Id. at 499 (internal quotation marks and ellipsis omitted). Thus, although there is nothing
inherently unreasonable about these types of “eligibility requirements for Trustees” in the
abstract, Demopoulos, 2017 WL 4233081, at *4, on the particular facts of this case, the Court
concludes that the Participation Provision interferes with the Union’s ability to carry out its
fiduciary duties in a manner that violates ERISA.
2
Defendants submit a list of “potential Union Trustees taken from the Pension Fund
Census for candidates residing in the NYC vicinity,” ECF No. 123, in support of the assertion
that “there are at least fifty three (53) potential candidates that are deferred vested and reside in
the NYC vicinity (5 boroughs, Long Island and Westchester) and have the skill set to become a
trustee,” Defs’ Opp’n to Pl. Mot. 10. The Court declines to consider the list, however, for
multiple reasons. First, it was never produced in discovery. Second, it has not been
authenticated, by sworn affidavit or otherwise. And third, although some data on the list appears
elsewhere in the record (for instance, on the Pension Fund Retiree List), some (most notably, that
those on the list “have the skill set to become a trustee”) does not.
7
In short, in the circumstances of this case, the Court concludes that the Union is correct
and that both the Cause and Participation Provisions violate ERISA. Thus, the Union is entitled
to, and granted, a declaratory judgment to that effect. In addition, it is entitled to, and granted, a
permanent injunction enjoining Defendants from enforcing both Provisions. See, e.g., Roach v.
Morse, 440 F.3d 53, 56 (2d Cir. 2006) (“To obtain a permanent injunction, a plaintiff must
succeed on the merits and show the absence of an adequate remedy at law and irreparable harm
if the relief is not granted.” (internal quotation marks omitted and emphasis added)). That is
because it plainly lacks an adequate remedy at law and enforcement of the two Provisions has
caused, and will continue to cause, the Union irreparable harm by interfering with “its crucial
ability to oversee the work of its appointed Trustees and to intervene quickly pursuant to its own
fiduciary obligations if it should conclude that a sitting Trustee’s actions are not in the best
interest of the Funds.” Demopoulos, 2017 WL 4233081, at *3; see also Allied Craftsmen, 858 F.
Supp. at 376 (noting that “[c]ontinuance of any trustees serving contrary to the wishes and
governing documents of the appointing authority inherently causes irreparable injury”).
For the reasons stated above, the Court GRANTS the Union’s motion for summary
judgment and DENIES Defendants’ cross-motion for summary judgment. (Additionally, the
Union’s motion to strike and motion to amend, see ECF No. 124 at 24 n.26, are also denied as
moot.) No later than one week from the date of this Opinion and Order, the Union shall
confer with Defendants and submit a proposed Judgment consistent with this Opinion and Order.
The Clerk of Court is directed to terminate ECF Nos. 98, 113, and 121.
SO ORDERED.
Dated: September 13, 2019
New York, New York
__________________________________
JESSE M. FURMAN
United States District Judge
8
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?