In re Luna

Decision Date03 May 2005
Docket NumberNo. 03-7060.,03-7060.
PartiesIn re Joyce B. LUNA, Vernie S. Luna, Debtors. Daniel Navarre, John Hunter, Harvey Swift, William H. Noble, Jerry Wilson, Robert Troquille, Phil Dozier, Richard Maples, Ronnie Prudhomme, Houston Lee, Donald Denese, Larry Savell, as Trustees of the Iron Workers' Mid-South Pension Fund; Iron Workers' Mid-South Pension Fund, Appellants, and John Hunter, Harvey Swift, William H. Noble, A.J. Morrison, Tom Lambert, Ivan B. Williams, as Trustees of the Mid-South Iron Workers' Welfare Plan; The Mid-South Iron Workers' Welfare Plan; William H. Noble, John Hunter, Harvey Swift, Alfred Dean, Tom Lambert, Ivan B. Williams, as Trustees of the Oklahoma Iron Workers' Direct Contribution Plan and Trust; Oklahoma Iron Workers' Direct Contribution Plan and Trust; The Oklahoma Iron Workers; Apprenticeship and Training Fund Local 584, Plaintiffs, v. Mark Luna; Joyce B. Luna, Appellees.
CourtU.S. Court of Appeals — Tenth Circuit

Kelly F. Monaghan, Holloway & Monaghan, Tulsa, OK, for Appellants.

Weldon W. Stout, Wright, Stout, Fite & Wilburn, Muskogee, OK, for Appellees.

Before LUCERO, McCONNELL, and TYMKOVICH, Circuit Judges.

TYMKOVICH, Circuit Judge.

The question in this case is whether the Employee Retirement Income Security Act of 1974 (ERISA) makes an employer a fiduciary to its employees if it agrees to make regular employer contributions to an ERISA-covered employee-benefit plan. The Plaintiff-Appellants (Trustees) are trustees of various employee-benefit funds (Funds) who sued the Defendant-Appellees (the Lunas) to recover promised but unpaid monthly employer contributions to the Funds. The payments were owed pursuant to a collective bargaining agreement to which the Lunas' company was a party.

The Trustees argue that the Lunas breached their fiduciary duties to the Funds under ERISA, and that therefore the unpaid contributions cannot be discharged in bankruptcy. Finding that the Lunas were not ERISA fiduciaries, we AFFIRM the district court's ruling that the debt is dischargeable in bankruptcy.

I. Background

Luna Steel Erectors, Inc. was an Oklahoma construction company that employed workers represented by Local 584 of the International Association of Bridge, Structural & Ornamental Iron Workers, AFL-CIO. The Lunas, whose family had been ironworkers for generations, each owned 50% of Luna Steel's stock, and Joyce Luna served as its President, Secretary, and record-keeper. Her son, Mark Luna, acted as Vice President.

The Trustees administer a number of multi-employer employee-benefit plans pursuant to a collective bargaining agreement (CBA) between various local unions, including Local 584, and various local employers and employer groups. In 1997, Joyce Luna signed the CBA as an owner of Luna Steel, and thereafter employed workers represented by Local 584. According to the CBA, Luna Steel agreed to submit monthly employer contributions to the Funds for the benefit of its Local 584-affiliated employees. Employer contributions under the CBA were "fringe benefits," and at no point did the Lunas withhold any portion of their employees' wages.

In March 1999, the financial condition of Luna Steel considerably worsened, and from March until December it failed to make the requisite contributions to the Funds. In an August 1999 letter to the Trustees, Joyce Luna acknowledged the outstanding contributions and expressed Luna Steel's intention to meet its obligations. In the meantime, Luna Steel continued to make payments for salaries and other business or personal expenses.1 Conditions became so desperate during this period that Joyce Luna turned over for Luna Steel's benefit approximately $43,000 from her IRA and $7,000 in savings bonds, none of which Luna Steel ever repaid. Mark Luna also borrowed $30,000 in his own name from a local bank and deposited it in Luna Steel's account. Finally, in December Luna Steel's directors agreed to dissolve the corporation, which ceased operations on December 31, 1999. As of a March 2000 audit, over $121,000 was owing to the Funds. Joyce and Mark Luna both filed voluntary Chapter 7 bankruptcy petitions on August 1, 2000.

In November 2000, the Trustees brought an action in United States Bankruptcy Court seeking a determination that the Lunas were personally responsible for the unpaid contributions. The Trustees alleged the debt was nondischargeable under 11 U.S.C. § 523(a)(4) since the Lunas had committed "fraud or defalcation" while acting in a fiduciary capacity. The Trustees based this argument on the fact that the Lunas continued to take some income and personal expenses at a time when they should have been making contributions to the Funds. To prevail on this claim, the Trustees had to establish that the Lunas acted as fiduciaries under § 523(a)(4) of the Bankruptcy Code. Antlers Roof-Truss & Builders Supply v. Storie (In re Storie), 216 B.R. 283, 286 (10th Cir. B.A.P. (Okla.1997)). In an attempt to do so, the Trustees argued the Lunas were fiduciaries under ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), which states, in part, that a fiduciary is one who "exercises any authority or control respecting management or disposition of [plan] assets."2

The bankruptcy court held that while ERISA imposes fiduciary obligations under § 523(a)(4) of the Bankruptcy Code, because unpaid contributions do not constitute "plan assets," the Lunas had committed no defalcation and the debt could be discharged in bankruptcy. The Trustees appealed to United States District Court, which agreed with the reasoning of the bankruptcy court. The Trustees then brought this appeal.

II. Discussion

To establish ERISA fiduciary status within the meaning of ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), the Trustees had to show (1) that the unpaid contributions were plan assets, and (2) that the Lunas exercised authority and control over the management or disposition of these assets. The district court's holding addressed only the first issue, finding that unpaid contributions "do not become plan assets until they have been paid into the particular funds." Having concluded that unpaid contributions were not plan assets, the district court did not need to decide whether the Lunas exercised fiduciary-like authority or control. As explained below, although we disagree with the district court's conclusion that contributions are not plan assets, we nevertheless affirm the lower court's order because, in our view, the Lunas did not exercise authority or control respecting the management or disposition of a plan asset.

A. The Contractual Right to Unpaid Contributions is an "Asset" Under ERISA

ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), states, in part, that a person may become a fiduciary to an ERISA plan to the extent they "exercise[ ] any authority or control respecting management or disposition of its assets." (emphasis added). Whether unpaid contributions are "assets" of an ERISA plan is a matter of first impression in this circuit, one that we review de novo. United States v. Telluride Co., 146 F.3d 1241, 1244 (10th Cir.1998) (interpretation of federal statutes is a legal question reviewed de novo). As discussed below, we hold that the contractual right to collect the unpaid contributions is a plan asset.

The Trustees argue that "unpaid contributions become plan assets at the time they become due and owing." Aplt. Br. at 10. The Lunas, by contrast, argue that "contributions owed to the Pension Fund did not become plan assets until they [are] paid to it." Aple. Br. at 12. The Lunas do not dispute that they had an obligation under the CBA to make monthly contributions they argue only that this obligation was contractual in nature rather than fiduciary, much like any other account payable or financial obligation of the company. As their brief puts it, "the contractual obligation[] owed by Luna Steel, Inc. to Appellants/Funds is simply a contractual obligation...." Id. at 17. The district court accepted this argument and held that the unpaid contributions do not amount to plan assets.

ERISA itself does not define what constitutes an "asset" of an ERISA fund.3 Therefore, as in any case of statutory construction, we begin our analysis by looking to the plain meaning of the words used by Congress. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999) (in ERISA context, noting that "our analysis begins with the language of the statute. And where the statutory language provides a clear answer, it ends there as well") (citations and quotation omitted); Gardner v. Chrysler Corp., 89 F.3d 729, 736 (10th Cir.1996) (applying plain meaning rule). We presume Congress intended for the courts to apply the plain language of the statute unless such interpretation would lead to an absurd result. Resolution Trust Corp. v. Westgate Partners, Ltd., 937 F.2d 526, 529 (10th Cir.1991).

An "asset" is defined as "1. An item that is owned and has value. 2. The entries on a balance sheet showing the items of property owned, including cash, inventory, equipment, real estate, accounts receivable, and goodwill. 3. All the property of a person available for paying debts." BLACK'S LAW DICTIONARY 112 (7th ed.1999). Central to the definition of "asset," then, is that the person or entity holding the asset has an ownership interest in a given thing, whether tangible or intangible. In determining ownership interests, the obvious starting point is the common law of property. Cf. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992) (relying on common law definition of "employee" because ERISA does not helpfully define that term). Indeed, the Department of Labor has instructed that "the assets of a plan generally are to be identified on the basis of ordinary notions of property rights under non-ERISA law. In general, the assets of a welfare plan would include any property, tangible or...

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