Bos v. Bd. of Trs.

• Decision Date: 30 July 2015
• Docket Number: No. 13–15604.,13–15604.
• Parties: Gregory BOS, Appellant, v. BOARD OF TRUSTEES, in their capacities as Trustees of the Carpenters Health and Welfare Fund of California; Carpenters Vacation–Holiday Trust Fund for Northern California ; Carpenters Pension Trust Fund for Northern California; Carpenters Annuity Trust for Northern California; Carpenters Training Trust Fund for Northern California ; Northern California Carpenters Regional Council, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

795 F.3d 1006

Gregory BOS, Appellant

v.BOARD OF TRUSTEES, in their capacities as Trustees of the Carpenters Health and Welfare Fund of California; Carpenters Vacation–Holiday Trust Fund for Northern California ; Carpenters Pension Trust Fund for Northern California; Carpenters Annuity Trust for Northern California; Carpenters Training Trust Fund for Northern California ; Northern California Carpenters Regional Council, Appellee.

No. 13–15604.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 14, 2015.

Filed July 30, 2015.

Kristen Ditlevsen Renfro, Desmond, Nolan, Livaich & Cunningham, Sacramento, CA, argued the cause and, along with J. Russell Cunningham, J. Luke Hendrix, and Gabriel P. Herrera, filed the briefs for appellant.

Tracy L. Mainguy, Weinberg, Roger & Rosenfeld, Alameda, CA, argued the cause, and Christian L. Raisner, Emily P. Rich, Jordan D. Mazur, and Jolene E. Kramer filed the brief for the appellees.

Appeal from the United States District Court for the Eastern District of California, Morrison C. England, Jr., Chief District Judge, Presiding. D.C. No. 2:12–cv–02026–MCE.

Before: DIARMUID F. O'SCANNLAIN and SANDRA S. IKUTA, Circuit Judges and LARRY A. BURNS,^* District Judge.

OPINION

O'SCANNLAIN, Circuit Judge:

We must decide whether an employer's contractual requirement to contribute to an employee benefits trust fund makes it a fiduciary of unpaid contributions.

I

Beginning in 2007, Gregory Bos was owner and president of Bos Enterprises, Inc. (“BEI”). BEI was a member of the Modular Installers Association, an employer association. As president of BEI, Bos agreed that BEI would be bound by the Carpenters' Master Agreement, and several trust agreements. The Carpenters' Master Agreement required each employer—including BEI—to contribute monthly payments based on hours of work to the trust funds (the “Funds”)¹ for the purpose of providing employee benefits. Each trust agreement defined its respective fund as including “all contributions required by the [Carpenters' Master Agreement] ... to be made for the establishment and maintenance of the [respective plan], and all interest, income and other returns of any kind.” With the exception of the Health and Welfare Fund Agreement, the trust agreements defined each fund to include, as well, any other money received or held because of or pursuant to the trust.

Neither party disputes that Bos personally had full control over BEI's finances, as well as authority to make payments on behalf of BEI, whether to the Funds or to other creditors. Thus, Bos was personally responsible for making the required contributions to the Funds on behalf of BEI. In any event, he struggled to make the payments required by the Carpenters' Master Agreement. On March 9, 2009, Bos signed a promissory note personally guaranteeing payment to the Funds of $359,592.09—the amount he had failed to pay from August 2008 through January 2009. Although he made one payment in April 2009 of $30,824.99, he otherwise failed to meet the payment obligations required by the promissory note.

The Board of Trustees (“the Board”)—charged with administering the Funds—subsequently filed a grievance against Bos and BEI to recover the outstanding amount owed to the Funds under the Carpenters' Master Agreement. An arbitrator granted the Board an award of $504,282.59 against Bos, individually and as doing business as BEI, and BEI.

On February 28, 2011, Bos and his spouse filed a joint petition for Chapter 7 bankruptcy. On May 27, 2011, the Board filed a complaint against Bos and his spouse contesting the dischargeability of the $504,282.59 debt. The Board subsequently amended its complaint so as to dismiss Bos's spouse.

On July 12, 2012, the bankruptcy court entered judgment, concluding that Bos had committed defalcation while acting as a fiduciary of the Funds and that the $504,282.59 debt to the Funds was therefore nondischargeable.² On March 8, 2013, the district court affirmed the bankruptcy court on the same grounds, and on March 12, 2013, the district court entered an order to that effect. Bos timely appealed.³

II

Bos argues that the bankruptcy court and district court erred in concluding that he was a “fiduciary” under 11 U.S.C. § 523(a)(4).

A

Section 523(a)(4) of the Bankruptcy Code provides that Chapter 7 debtors may not discharge debts incurred due to the debtor's “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 11 U.S.C. § 523(a)(4). For a debt to be held nondischargeable under § 523(a)(4)'s defalcation provision, the debtor must have been a fiduciary prior to his commission of the fraud or defalcation. See Blyler v. Hemmeter (In re Hemmeter), 242 F.3d 1186, 1190 (9th Cir.2001). In other words, the act of wrongdoing that created the debt cannot be the same act that gives rise to the fiduciary relationship. Id.

If an individual is a fiduciary for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”), Pub.L. No. 93–406, 88 Stat. 829 (codified as amended in scattered sections of 29 U.S.C.), the individual is also treated as a fiduciary for purposes of § 523(a)(4). See In re Hemmeter, 242 F.3d at 1190. ERISA defines a fiduciary as, inter alia,an individual who “exercises any discretionary authority or discretionary control respecting management of [a] plan or exercises any authority or control respecting management or disposition of its assets.” 29 U.S.C. § 1002(21)(A)(I).

Both the bankruptcy court and the district court concluded that Bos's debt was nondischargeable under § 523(a)(4) because he controlled money which was contractually required to be paid to the Funds—pursuant to both the Carpenters' Master Agreement and the promissory note—and therefore was a fiduciary for purposes of both ERISA and § 523(a)(4). Specifically, each concluded that because the trust agreements defined the Funds as including contributions “required ... to be made” to the Funds, the unpaid contributions were plan assets. They then concluded that because Bos, as president of BEI, personally had control over BEI's finances and the authority to make contributions to the Funds, he personally exercised the requisite control over the unpaid contributions to be deemed a fiduciary under ERISA, and therefore under § 523(a)(4) as well.

B

We have consistently held that unpaid contributions by employers to employee benefit funds are not plan assets. See Cline v. Indus. Maint. Eng'g & Contracting Co., 200 F.3d 1223, 1234 (9th Cir.2000). Several district courts within this Circuit have recognized an exception to Cline, however, when the plan document expressly defines the fund to include future payments. See, e.g., Bd. of Trs. v. River View Constr., No. C–12–03514PJH(DMR), 2013 WL 2147418, at *6 (N.D.Cal. Apr. 17, 2013) (concluding that when the plan document defined the fund as including “all Contributions required ... to be made,” unpaid contributions were plan assets); Trs. of the S. Cal. Pipe Trades Health & Welfare Tr. Fund v. Temecula Mech., Inc., 438 F.Supp.2d 1156, 1165 (C.D.Cal.2006) (concluding that when the plan document defined the fund as including money “due and owing to the Fund by the Employers,” unpaid contributions were plan assets). These courts have construed such language as imposing ERISA fiduciary status upon an employer simply by virtue of its control over unpaid contributions to the fund. See, e.g., River View Constr., 2013 WL 2147418, at *6 ; Temecula, 438 F.Supp.2d at 1168–69.

We have not yet determined whether to recognize such an exception to Cline. See Carpenters Pension Tr. Fund for N. Cal. v. Moxley, 734 F.3d 864, 869 (9th Cir.2013) (expressly declining to decide whether a plan document can classify unpaid contributions as plan assets so as to impose fiduciary status upon an employer). Moreover, the circuits that have addressed the issue are split.

The Eleventh Circuit, for instance, recognized the possibility of such an exception in ITPE Pension Fund v. Hall, 334 F.3d 1011, 1016 (11th Cir.2003). Notably, the court there emphasized that the plan document defined the fund as including receivable property, rather than mere receivables, distinguishing between “a contractual or legal claim for payment of the money due, in contrast to the actual money due.” Id. at 1014 n. 4. The court explained that if the plan asset were merely a contractual right to payment, the employer would have no authority over the asset so as to establish a fiduciary relationship. Id. But because the plan document defined the fund as including receivable property, the court concluded that the unpaid contributions themselves could become fund assets at the time of nonpayment, and the employers—who had control over the money which they were contractually obligated to pay to the fund—would therefore be treated as fund fiduciaries by virtue of their nonpayment. Id.

The Second Circuit has similarly construed a plan document designating plan assets to include unpaid contributions as establishing fiduciary status for an employer who had authority to make such contributions. See Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Constr., LLC, 779 F.3d 182, 189 (2d Cir.2015) ; see also Rahm v. Halpin (In re Halpin) , 566 F.3d 286, 290 (2d Cir.2009) (speculating that a plan document could designate unpaid contributions as plan assets sufficient to establish fiduciary status for purposes of § 523(a)(4), but ultimately concluding that the document in that case failed to do so).

C

Other circuits, however, have declined to apply such an exception, particularly in the context of § 523(a)(4).

The Tenth Circuit, for instance, declined to apply the exception in Navarre v. Luna (In re Luna) , 406 F.3d 1192 (10th Cir.2005).⁴ The Luna court first concluded that a plan document could impose on an employer a contractual obligation that would create some form of plan asset. Id. at 1198–201. Departing from the approach taken by the Eleventh Circuit in Hall, however, t...