Finkel v. Romanowicz

• Decision Date: 11 August 2009
• Docket Number: Docket No. 07-2558-cv.
• Citation: 577 F.3d 79
• Parties: Gerald FINKEL, as Chairman of the Joint Industry Board of the Electrical Industry, Plaintiff-Appellant, v. Joseph ROMANOWICZ, Defendant-Appellee, Whiffen Electric Co., Inc. Defendant.
• Court: U.S. Court of Appeals — Second Circuit

577 F.3d 79

Gerald FINKEL, as Chairman of the Joint Industry Board of the Electrical Industry, Plaintiff-Appellant, v. Joseph ROMANOWICZ, Defendant-Appellee, Whiffen Electric Co., Inc. Defendant.

Docket No. 07-2558-cv.

United States Court of Appeals, Second Circuit.

Argued: May 8, 2009.

Decided: August 11, 2009.

James R. Grisi (Jani K. Rachelson, Robin H. Gise, of counsel, and Molly A. Brooks, on the brief), Cohen, Weiss and Simon LLP, for Appellant Gerald Finkel.^*

Before: CABRANES and WALLACE, Circuit Judges.^**

JOSÉ A. CABRANES, Circuit Judge:

Plaintiff-appellant Gerald Finkel, as Chairman of the Joint Industry Board of Electrical Industry (the "Joint Board"), challenges a May 14, 2007 default judgment entered by the United States District Court for the Eastern District of New York (John Gleeson, Judge) against Whiffen Electric Co., Inc, ("Whiffen") pursuant to sections 502 and 515 of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1132 and 1145, for delinquent contributions of employee benefits but dismissing the Joint Board's claims against defendant-appellee Joseph Romanowicz, a principal of Whiffen. See Finkel v. Whiffen Elec. Co., No. 06-1269, 2007 WL 1395562, at *2 (E.D.N.Y. May 14, 2007). In this appeal, we consider whether (1) Romanowicz was a "fiduciary" of an ERISA benefits plan within the meaning of 29 U.S.C. § 1002(21)(A), so that he may be held jointly and severally liable for the delinquent payments; (2) the District Court erred in not conducting a hearing before dismissing the Joint Board's breach-of-fiduciary-duty claim; and (3) Romanowicz is, under section 3-403(2)(b) of New York's Uniform Commercial Code ("N.Y.U.C.C."), personally liable for dishonored checks tendered to the Joint Board by Romanowicz to meet a portion of Whiffen's obligations for employee benefit contributions.

BACKGROUND¹

The Joint Board is an administrator and fiduciary of several ERISA employee-benefit funds established by collective bargaining agreements between Local Union No. 3 of the International Brotherhood of Electrical Workers, AFL-CIO ("the Union") and employers supplying electrical services. Whiffen was one such employer at all points relevant to this litigation. Pursuant to one of these collective bargaining agreements with the Union (the "CBA"), Whiffen was obligated to withhold specified portions of employees' wages and, on a monthly basis, remit them to the Joint Board for deposit in several ERISA funds, including a multi-employer cash or deferred arrangement within the meaning of Internal Revenue Code § 401(k), 26 U.S.C. § 401(k) ("the 401(k) Plan").

In September 2004 the Joint Board received two checks from Whiffen bearing Romanowicz's signature, one in the amount of $19,048.48 and the other for $7,383.47, conveyed in accordance with the CBA's terms. However, each was dishonored and returned to the Joint Board due to insufficient funds. In August 2005, the Joint Board received another check from Whiffen, again signed by Romanowicz, this time in the amount of $9,572.98. As with the previous checks, the August 2005 check was dishonored. From August 3, 2005 through October 12, 2005, Whiffen failed to make payments required under the CBA to various ERISA funds administered by the Joint Board. Similarly, from July 6, 2005 through October 12, 2005, Whiffen failed to remit required contributions to the 401(k) Plan.

In March 2006, the Joint Board filed suit against Whiffen and Ramonowicz, alleging that, in violation of 29 U.S.C. § 1145, each had failed to remit timely contributions to the 401(k) Plan and other ERISA plans administered by the Joint Board.² The Joint Board sought to recover from Whiffen all funds withheld from the 401(k) Plan and other funds owed for the period from August 3, 2005 to October 12, 2005.³ It also sought to impose joint and several liability against Whiffen and Romanowicz for delinquent contributions to the 401(k) Plan under the theory that Romanowicz had withheld contributions in breach of a fiduciary duty.⁴ Further, the Joint Board averred that, under section 3-403(2)(b) of the N.Y. U.C.C., Romanowicz was personally liable for the dishonored checks.⁵

Neither Whiffen nor Romanowicz responded to the complaint or otherwise appeared before the District Court to defend the lawsuit brought by the Joint Board. On June 9, 2006, the Joint Board requested that the Clerk of the Court enter defendants' default pursuant to Rule 55 of the Federal Rules of Civil Procedure. See Fed.R.Civ.P. 55(a) ("When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default."). On the same day, the Joint Board moved for a default judgment against both defendants, arguing that further briefing was not necessary to establish defendants' liability because entry of judgment in their favor would "require[] no findings of fact and there are no disputed questions of law." J.A. 7 (motion for default judgment); see also Fed.R.Civ.P. 55(b)(2) (noting that a district court "may conduct hearings or make referrals ... to enter or effectuate [a default] judgment").

The District Court noted defendants' default and referred the matter to Magistrate Judge Steven M. Gold to recommend an award of damages. Whiffen and Romanowicz again failed to respond to the Joint Board's allegations.⁶ After reviewing the complaint and documents submitted by the Joint Board, the Magistrate Judge concluded that the Joint Board had established Whiffen's liability for unpaid contributions to the 401(k) Plan and other benefit funds and recommended an award of $12,341.58 for unpaid contributions to the 401(k) Plan and $106,102.34 for unpaid contributions to other funds. Magistrate Judge Gold also recommended an award of $8,493.95 in interest, $8,493.95 in liquidated damages, and $7,670.28 in attorneys' fees and costs. See 29 U.S.C. § 1132(g)(2) (authorizing awards of unpaid contributions, interest, attorney's fees and costs, and "other legal or equitable relief").

Magistrate Judge Gold recommended dismissal of the Joint Board's claims against Romanowicz. First, the Magistrate Judge concluded that the Joint Board had failed to make out a prima facie case for breach of fiduciary duty against Romanowicz because it had not established that he was a fiduciary of the 401(k) Plan. Second, Magistrate Judge Gold reasoned that Romanowicz was not personally liable under the N.Y. U.C.C. for the dishonored checks because, in the Magistrate Judge's view, the parties "likely" understood that Romanowicz signed them in a representative capacity, J.A. 228 (Report and Recommendation), and that the Joint Board had "offered no evidence, nor made any assertions of fact, suggesting there was not such [an understanding]," id. at 229.

Over the Joint Board's timely objection, the District Court adopted Magistrate Judge Gold's Report and Recommendation, holding that the Joint Board had failed to establish Romanowicz's alleged fiduciary status because the Board did not demonstrate Romanowicz's exercise of authority over 401(k) Plan assets. See Finkel, 2007 WL 1395562 at *1. After noting that the Joint Board characterized Magistrate Judge Gold's second conclusion as "clearly erroneous," the District Court agreed with the Magistrate Judge's finding that the parties understood Romanowicz to have signed the dishonored checks in a representative capacity. See id. at *2.

This timely appeal followed.

DISCUSSION

On appeal, the Joint Board argues that the District Court erred in (1) holding that Romanowicz was not a fiduciary of the 401(k) Plan, (2) failing to conduct a hearing prior to dismissing the breach-of-fiduciary-duty claim, and (3) holding that, under the N.Y. U.C.C., Romanowicz was not personally liable for the dishonored checks because he signed them in a representative capacity.

In light of Romanowicz's default, a court is required to accept all of the Joint Board's factual allegations as true and draw all reasonable inferences in its favor, see Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir.1981) (noting that, where a party moves for a default judgment after another party's default, the moving party is "entitled to all reasonable inferences from the evidence offered"), but it is also required to determine whether the Joint Board's allegations establish Romanowicz's liability as a matter of law, see id. ("[A] district court retains discretion under [Federal Rule of Civil Procedure] 55(b)(2) once a default is determined to require proof of necessary facts and need not agree that the alleged facts constitute a valid cause of action....").

We review de novo a district court's application of law to undisputed facts, see, e.g., In re New Times Sec. Servs., Inc., 463 F.3d 125, 127 (2d Cir. 2006), which in this case were established through the Joint Board's pleadings, submissions to the District Court, and Romanowicz's default.⁷ See LoPresti v. Terwilliger, 126 F.3d 34, 39 (2d Cir.1997) ("[W]here the facts are not in question, whether a party is an ERISA fiduciary is `purely a question of law.'" (quoting Kayes v. Pac. Lumber Co., 51 F.3d 1449, 1458 (9th Cir.1995))).

Fiduciary Duty

Pursuant to 29 U.S.C. § 1145, see note 2, ante, where an employer has entered into a collective bargaining agreement requiring him to remit funds to an ERISA plan, the employer is obligated to "make such contributions in accordance with the terms and conditions of [the collective bargaining] agreement." If an employer fails to make required contributions, a fiduciary of the plan may sue the employer, or another fiduciary of the plan, as that term is defined under ERISA, to recover the unpaid contributions. See 29 U.S.C. §§ 1132, 1109; notes 3 & 4, ante. In turn, ERISA provides alternative definitions of "fiduciary." For example, ERISA provides that a fiduciary is someone who "exercises any discretionary...