Benefit funds can’t revive ERISA suit against company owners for unpaid contributions

A group of employee benefit trust funds were unable to revive their ERISA action seeking unpaid contributions from the owners of a company whose benefit plans they managed. Rejecting the trusts’ assertion that the unpaid contributions were trust assets over which the owners exercised control, and that they could therefore sue the owners to collect the contributions under contracts governing the plan, a divided Ninth Circuit panel held that the claim was foreclosed by the Ninth Circuit’s decision in Bos v. Bd. of Trustees (Bos I), which held that parties to an ERISA plan cannot designate unpaid contributions as plan assets. Dissenting, Judge Gleason disagreed with this interpretation of Bos I, and would have found that outside of the bankruptcy context, unpaid employer contributions to employee benefit plans may constitute plan assets when the ERISA plan document expressly defines them as such.

Contractually required to contribute.

The trusts brought this lawsuit against the two sole owners and officers of Accuracy Glass & Mirror Company, Inc. (one was the president, the other the secretary-treasurer). Accuracy was a party to two master labor agreements, under which the company was required to contribute to the trusts to provide employee benefits, including health insurance and pensions. In addition, each trust was governed by its own trust agreement, which purported to treat unpaid contributions as trust assets.

Fiduciary duty claim.

After Accuracy failed to make the required payments, the trusts filed this lawsuit against the owners asserting breach of fiduciary duty. The trusts argued that, pursuant to the contracts, the unpaid contributions were trust assets over which the owners exercised control and that the trusts could therefore sue them as fiduciaries to collect those contributions. The district court disagreed and dismissed their claim, reasoning that pursuant to Bos I, an employer’s contractual requirement to contribute to an employee benefits trust fund does not make it a “fiduciary of unpaid contributions.” Thus, the owners were not subject to fiduciary liability under ERISA.

Dismissal affirmed.

The Ninth Circuit agreed with the district court that Bos I foreclosed the trusts’ fiduciary duty claim. It had previously adopted the general rule that “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.” And while it subsequently left open whether to recognize an exception to that rule when plan documents expressly define the fund to include future payments, the appeals court rejected such an exception in Bos I.

Bos I was bankruptcy case.

In Bos I, the company had similarly consented to be bound by a master agreement that required it to contribute to the trust funds. The associated trust agreements generally defined each fund to include “any other money received or held because of or pursuant to the trust.” When the company struggled to make the required payments, the fund trustees filed a grievance against the both company and its president individually, and an arbitrator granted awards against both. After the president filed for bankruptcy, the trustees filed a complaint in his bankruptcy proceeding arguing that pursuant to the Bankruptcy Code, the debt owed to the trusts was not dischargeable.

Holding extends to ERISA.

Under Ninth Circuit case law, if an individual is a fiduciary under ERISA, he or she is also treated as a fiduciary for purposes of the Bankruptcy Code. Thus, Bos I addressed whether the president was a fiduciary of the trusts under ERISA and therefore properly considered a fiduciary under the Bankruptcy Code. After recognizing disagreement in other circuits over whether an individual who controls money contractually owed to ERISA funds is a fiduciary under ERISA, the Bos I court sided with the circuits that declined to apply an exception to “the general rule that an employer cannot be an ERISA fiduciary with respect to unpaid contributions.” In other words, even an ERISA plan that treats unpaid contributions as plan assets does not make an employer a fiduciary with respect to those owed funds.
Here, the trusts argued that Bos I did not control in this ERISA case since Bos I was a bankruptcy case and fiduciary duties are construed more broadly under ERISA than under the Bankruptcy Code. However, the Bos I court declined to recognize an exception to the “general rule that unpaid contributions to employee benefit funds are not plan assets.” Rather, it held that the president was not a fiduciary under ERISA or the Bankruptcy Code.
Therefore, the majority in this case held that the implications of Bos I extended beyond bankruptcy to ERISA. Even if the wording of Bos I left room for doubt on this issue, the same Ninth Circuit panel clarified in Bos II that it had concluded that the company’s president was not a fiduciary under ERISA, and “thus the Bankruptcy Code’s ‘fiduciary’ exception to discharge could not be applied to him.” Because that rule applied equally here, the district court was correct to conclude that the two owners were not fiduciaries of the trusts.

Dissent: Bos I limited to bankruptcy.

Judge Gleason disagreed with the majority’s interpretation of Bos I, and would find that outside of the bankruptcy context, unpaid employer contributions to employee benefit plans may constitute plan assets when the ERISA plan document expressly defines them as such. Moreover, the majority’s holding was at odds with other circuits, including the Second and Seventh Circuits, which have held that unpaid employer contributions may constitute plan assets when the parties explicitly agree to treat them as such.

SOURCE: Glazing Health and Welfare Fund v. Lamek, (CA-9), No. 16-16155, March 21, 2018.
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