Lopresti v. Terwilliger

• Citation: 126 F.3d 34
• Decision Date: 12 September 1997
• Docket Number: No. 672,D,672
• Parties: 21 Employee Benefits Cas. 1716, Pens. Plan Guide (CCH) P 23937T Patrick LOPRESTI, as Trustee of the Pension Fund of Local One, Amalgamated Lithographers of America, as Trustee of the Sickness & Accident Fund of Local One, Amalgamated Lithographers of America, and as President of Local One, Amalgamated Lithographers of America, Plaintiff-Appellant, Richard Boesch; Marcos Bonilla; William Capone; Louis Chiacchiaro; John Churchill; Henry Christadoro; Joseph Currao; Joseph D'Agostino; Johnny Gonzalez; Anthony Grotto; Dennis Larkin; John Lazarus; Robert Lepore; Martin Mizrachi; Alfred Natale; Milton Nazario; Gerald Pizzo; Joseph Ressa; Vincent Rice; Daniel Romano; Leonard Sannicandro; Thomas Scaglione; Daniel Scavetta; Anthony Scott; James Seaman; Anthony Wetzel; Plaintiffs, v. John TERWILLIGER; Donald L. Terwilliger, III, Defendants-Appellees. ocket 96-9693.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 34

126 F.3d 34

21 Employee Benefits Cas. 1716,

Pens. Plan Guide (CCH) P 23937T

Patrick LOPRESTI, as Trustee of the Pension Fund of Local One, Amalgamated Lithographers of America, as Trustee of the Sickness & Accident Fund of Local One, Amalgamated Lithographers of America, and as President of Local One Amalgamated Lithographers of America, Plaintiff-Appellant Richard Boesch; Marcos Bonilla; William Capone; Louis Chiacchiaro; John Churchill; Henry Christadoro; Joseph Currao; Joseph D'Agostino; Johnny Gonzalez; Anthony Grotto; Dennis Larkin; John Lazarus; Robert Lepore Martin Mizrachi; Alfred Natale; Milton Nazario; Gerald Pizzo; Joseph Ressa; Vincent Rice; Daniel Romano Leonard Sannicandro; Thomas Scaglione; Daniel Scavetta; Anthony Scott; James Seaman; Anthony Wetzel; Plaintiffs, v. John TERWILLIGER; Donald L. Terwilliger, III, Defendants-Appellees.

No. 672, Docket 96-9693.

United States Court of Appeals, Second Circuit.

Argued Aug. 7, 1997.

Decided Sept. 12, 1997.

Ira S. Cure, Kennedy, Schwartz & Cure, New York City, for Plaintiff-Appellant.

Gail Ann Perry, Trial Attorney, U.S. Department of Labor, for Secretary of Labor as Amicus Curiae in Support of Plaintiff-Appellant, Washington, D.C.

David M. Richman, New York City, for Defendants-Appellees.

Before: CALABRESI and PARKER, Circuit Judges, and McCURN, District Judge. ^*

McCURN, District Judge:

Pursuant to a collective bargaining agreement between a commercial printing firm Joined by twenty-six former Company employees, the plaintiff-appellant, Patrick LoPresti ("the Trustee"), ³ commenced the present action against the defendant-appellees, John Terwilliger and Donald L. Terwilliger, III, ⁴ the Company's sole shareholders and officers, alleging multiple breaches of fiduciary duty under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001, et seq. Besides asserting five separate ERISA-based causes of action, the Trustee asserted a pendent state law claim for conversion and a cause of action under section 630 of the New York State Business Corporation Law ("BCL"). ⁵

                the D.L. Terwilliger Co., Inc.  ("the Company"), and Local One, Amalgamated Lithographers of America ("the Union"), the Company had an obligation to deduct from its employees' paychecks contributions which, in turn, it was to forward to the Union's pension fund and Sickness & Accident Fund (collectively, "the Funds").  Under that collective bargaining agreement, the Company also was obligated to deduct from its employees' paychecks Union dues and assessments (collectively, "the dues"), which it was to forward to the Union.  From May through September, 1995, the Company fell on hard times financially, 1 and although monies for the Funds and the Union were deducted from employee wages, neither the Funds nor the Union ever received those earmarked monies.  Instead, the deducted employee contributions and Union dues were deposited in the Company's general account and used to pay Company creditors who "screamed the loudest" and who were the most "threatening."   A150. 2
                

Following a non-jury trial, the United States District Court for the Southern District of New York (Chin, J.) found that the Terwilligers were not fiduciaries within the meaning of section 3(21)(A) of ERISA, codified at 29 U.S.C. § 1002(21)(A), and thus could not be held personally liable under ERISA for breach of fiduciary duty. Primarily because the record did not show that the Terwilligers used the earmarked monies for themselves, the district court further held that the Trustee failed to establish a cause of action for conversion. Thus, finding no merit to any of the Trustee's claims, the district court entered judgment in favor of the Terwilligers, dismissing the complaint with prejudice. This appeal followed.

For the reasons that follow, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

BACKGROUND

During the relevant time frame, Donald Terwilliger was the Company president and fifty-one percent (51%) shareholder, while his brother John held the remaining forty-nine percent (49%) of the shares. On behalf of the Company, Donald signed a collective bargaining agreement with the Union, and although he was not aware of the details of that agreement, he knew that Fund contributions and Union dues were deducted from the employees' paychecks. He was also aware that after the Company made those deductions, periodically, it turned them over to the Union and the Funds. Similarly, John was "aware generally" of deductions from employee wages; that those monies were placed in the Company's general accounts; and that "the union was to be paid when the 'bills' were due." A168-A169.

The Terwilligers both signed multiple checks which were drawn on a Company account, including checks which were forwarded to the Union. As the Terwilligers admitted, those deductions were not maintained On this appeal, the Trustee takes the position that because the Terwilligers exercised authority over plan assets they were "de facto " fiduciaries, and thus the district court erred in finding them not personally liable as such under ERISA. Endorsing the Trustee's position on this appeal, the Secretary of Labor, as amicus curiae, asserts that the district court erred in not finding that the Terwilligers were fiduciaries under ERISA because that statute does not permit, as the district court implied, that because of the Company's dire financial situation, the Terwilligers were free to use for Company operating expenses employee fund contributions. In other words, once the Terwilligers failed to segregate the employees' contributions and remit the same to the Funds, they became fiduciaries within the meaning of ERISA, and hence personally liable for any losses resulting from a breach of fiduciary duty on their part.

                in a separate account, however.  In terms of who had responsibility for deciding which creditors were paid and when, the district court expressly found that although Donald "ha[d] a role in determining which bills to pay, ... he usually followed the advice of [the Company's vice president of finance]."  A168. On the other hand, the district court found that John was "primarily a production person" in that "[h]e calculated the hours worked by employees and gave that information to the accounting department."  Id. Significantly, unlike Donald, the district court expressly found that John "had no responsibility for determining which of the company's creditors would be paid or in what order."  Id. (emphasis added).  In light of the foregoing, the district court held that neither of the Terwilligers were fiduciaries as ERISA defines that term because "[t]hey did not exercise any control in the sense contemplated by [that statute] as fiduciaries."   A171.
                

In response, the Terwilligers argue that as corporate officers and owners of a closely held-corporation which was in dire financial straits, they were simply exercising business judgment in deciding which Company creditors to pay and in what order. Therefore, the district court correctly held that the Terwilligers were not ERISA fiduciaries, and thus not personally liable thereunder for the Company's failure to remit employee contributions to the Funds.

In addition to challenging the district court's dismissal of the ERISA claims, because the Terwilligers assumed control over employee fund contributions and Union dues which should have been segregated, and because they used those monies for their own purposes--to keep Company creditors at bay--the Trustee maintains that the district court also erred in not finding the Terwilligers liable for conversion. Furthermore, the Trustee argues that the Terwilligers should be liable for conversion because, despite what the district court implied, an individual still can be held liable for conversion even if the money was not used for that individual's own purposes. Agreeing with the district court's observation that if there was any conversion claim here it would be against the Company, the Terwilligers counter that the district court rightly found that they should not be held personally liable for conversion for the manner in which they managed the Company's assets during troubled financial times.

DISCUSSION

I. Standard of Review

Before addressing the merits of these arguments, as the Trustee's reply brief makes clear, this Court must first consider the appropriate standard of review. Assuming the applicability of Fed.R.Civ.P. 52(a), ⁶ the Terwilligers assert, among other things, that Judge Chin's holding that they are not fiduciaries under ERISA should be affirmed because his factual findings in that regard were not clearly erroneous. Challenging the Terwilligers' assumption as to the appropriate standard of review, the Trustee contends that whether the Terwilligers are deemed to be ERISA fiduciaries is a question of law A district court's findings of fact following a bench trial will be set aside on appeal only if those findings are clearly erroneous. FDIC v. Providence College, 115 F.3d 136, 140 (2d Cir.1997) (citations omitted). Under the Supreme Court's oft-quoted formulation, "factual findings by the district court will not be upset unless [the Court of Appeals is] 'left with the definite and firm conviction that a mistake has been committed.' " Id. (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)). "The Supreme Court instructs that '[i]f the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently.' " Donato v. Plainview-Old Bethpage Cent. School Dist., 96 F.3d 623, 634 (2d Cir.1996), cert. denied, --- U.S. ----, 117 S.Ct. 1083, 137 L.Ed.2d 218 (1997) (quoting Anderson v. Bessemer City, 470 U.S....