Careful Bus Serv. v. Local 854 Health & Welfare Fund

Decision Date10 November 2022
Docket Number21 Civ. 10472 (LGS)
CourtU.S. District Court — Southern District of New York


Plaintiffs Careful Bus Service, Inc. and X-L Escort Services, Inc. bring this action for declaratory judgment, fraudulent inducement fraudulent concealment and breach of the implied covenant of good faith and fair dealing against Defendant Local 854 Health and Welfare Fund. Plaintiffs move for summary judgment on all of the claims in the Complaint and seek a declaration that Plaintiffs do not owe a Termination Premium to Defendant. The parties engaged in no discovery and agree that their dispute can be resolved on summary judgment. For the reasons below, Plaintiffs are granted summary judgment on the claim seeking a declaratory judgment that they do not owe a Termination Premium to the Defendant; their motion for summary judgment seeking attorneys' fees is denied and the remaining causes of action are dismissed as moot.


The following facts are drawn from the parties' Rule 56.1 statements and other submissions on these motions. The facts are undisputed or based on evidence in the record, drawing all reasonable inferences in favor of the non-moving party. See N.Y. State Teamsters Conf. Pension & Ret. Fund v C & S Wholesale Grocers, Inc., 24 F.4th 163, 170 (2d Cir. 2022). At issue is the validity of a Termination Premium that Defendant charged Plaintiffs.

Plaintiff Careful Bus Service, Inc. operates school buses in Manhattan, Queens, Brooklyn and the Bronx. Plaintiff X-L Escort Services, Inc. employs escorts for special needs children on school buses in those boroughs. At all relevant times, bus drivers and escorts employed by Plaintiffs were members of the labor union, International Brotherhood of Teamsters Local 553 (the “Union”). Plaintiffs were contributing employers to Defendant Local 854 Health and Welfare Fund. Defendant provided medical benefits to the Union participants and beneficiaries in the school bus industry until approximately September 2021.

Plaintiffs and the Union were parties to a collective bargaining agreement with a five-year term of July 1, 2018, through July 1, 2023 (the “CBA”). Defendant is a jointly trusteed, multiemployer welfare plan that provides health coverage to participating members of the Union. Under the CBA, Plaintiffs were obligated to contribute to Defendant on behalf of employees who were members of the Union. Defendant has six trustees: three appointed by the Union and three appointed by and/or appointed to represent contributing employers.

The CBA lists the amounts of required contributions for employees based on, among other things, length of service and chosen coverage. Plaintiffs have consistently paid all contributions to Defendant in full and on time, and Defendant has never assessed late fees or instituted a collections action against Plaintiffs.

In 2020, Steve Malone, a union-appointed trustee of Defendant, informed Plaintiffs that Defendant would soon be insolvent. Malone told Plaintiffs' vice president that Plaintiffs would benefit financially in the long term if they switched their health care coverage to a new welfare fund affiliated with Teamsters Local 210 (the Local 210 Fund). Malone negotiated an amendment to the CBA to that effect (the “CBA Amendment). The CBA Amendment was executed on October 1, 2020, on behalf of the Union by Demos Demopoulos, who was also a trustee of Defendant appointed by the Union. Pursuant to the CBA Amendment, Plaintiffs began contributing to the Local 210 Fund on November 1, 2020.

In the meantime and prior to Plaintiffs' switching their healthcare coverage, on March 25, 2020, the three trustees appointed by the Union had attended a meeting of Defendant's Board of Trustees. Since the beginning of the Covid-19 pandemic, Defendant's trustees have been conducting their meetings by teleconference. Shortly before the March 25, 2020, meeting, New York City had closed its schools, which had the effect of shutting down many employers who contributed to Defendant. At the same time, the financial markets declined, which affected Defendant financially. The meeting had already been postponed from March 16, 2020, at the request of trustees appointed by employers due to the school shutdown. The employer-appointed trustees again did not attend the March 25, 2020, meeting, so there was no quorum. Due to concerns over Defendant's financial stability, the union-appointed trustees met anyway.

Certain of Defendant's trustees were concerned about the impact of “incurred but not reported” (“IBNR”) expenses for employers who left the fund. IBNR expenses are claims for medical services performed while a participant is eligible for benefits where the claims are not reported until after their eligibility ends, when contributions for that participant have ceased. In general, when individual participants lose eligibility, IBNR expenses are covered by contributions for new participants -- for example if one employee is fired or retires and a replacement is hired. When an entire employer leaves the fund, IBNR claims for its participants might be made up by other employers' contributions or by reserves. In the context of the pandemic, as reserves decreased and many employers left the fund at once, Defendant was at risk of having insufficient reserves to cover its obligations.

At the March 25, 2020, meeting, trustee Demopoulos made a motion to amend the Trust Agreement to provide for a Termination Premium for former contributing employers. Demopoulos referenced “the burden placed on [Defendant] by the [IBNR] claims of participants who are employees or employee dependents of a former contributing Employer once that employer stops contributing to the [Defendant] under a collective bargaining agreement.” Demopoulos moved to impose a Termination Premium “equal to the IBNR claims attributable to that employer's employees and dependents of such employees, as determined by the Fund Actuary, effective immediately.” The motion further specified that [f]or purposes of collection and enforcement, termination premium payments shall be treated as delinquent contributions under the Trust Agreement and ERISA.” The motion was made, seconded and unanimously adopted by the union-appointed trustees, pending ratification by the full Board of Trustees.

Demopoulos circulated the motion by email to the employer-appointed trustees on March 25, 2020. All six trustees met on March 31, 2020, and Demopoulos made the same motion. The employer-appointed trustees' counsel, Jeffrey Pollack, stated that his clients needed more information about the proposal and asked several questions about it. Defendant's actuary stated that, “based on past experience, she would estimate IBNR for a given employer to be about twice the monthly claims cost.” The employer-appointed trustees refused to vote at the meeting, and their counsel stated that he would report their votes the next day.

On April 1, 2020, Pollack sent an email to Defendant's trustees stating that two of the employer-appointed trustees had voted to approve the amendment, and the third had abstained. Pollack stated that the employer-appointed trustees had voted for the motion based on the actuary's “statement that the IBNR is usually 2x one month's welfare contribution.” The two sets of unsigned meeting minutes from March 25 and 31, 2020, and the email from Pollack dated April 1, 2020, are the only writings memorializing the purported amendment to add the Termination Premium to the Trust Declaration. In the CBA, Plaintiffs “agree[d] to be bound by the terms, obligations and conditions of the [Trust Declaration], as amended and as may hereafter be amended.” The CBA Amendment changed the welfare fund from Defendant to the Local 210 Fund and changed the contribution rates but did not otherwise alter the CBA.

On December 10, 2020, Defendant sent Plaintiffs a letter demanding payment of a “Termination Premium” in the amount of $234,278. Defendant locates its authority to assess a Termination Premium in an amendment to Defendant's Trust Declaration purportedly approved by a vote of the trustees on March 31 and April 1, 2020. Prior to the December 10, 2020, letter, Plaintiffs had no notice that any such amendment had been proposed, voted on or adopted. On or about January 25, 2021, Plaintiffs replied to the December 10, 2020, letter stating that they considered the Termination Premium to be a nullity. Defendant did not respond to the January 25, 2021, letter. Defendant sent another letter to Plaintiffs on November 3, 2021, demanding payment and declaring Plaintiffs in default. Plaintiffs have not paid the Termination Premium.

In 2021, the union-appointed and employer-appointed trustees engaged in arbitration before the American Arbitration Association to resolve their dispute over whether the Termination Premium should apply only to employers who voluntarily left the fund (the employer-appointed trustees' position) or all employers who left the fund (the union-appointed trustees' position). The arbitrator found in favor of the union-appointed trustees' position. In the course of the arbitration, Plaintiffs' president swore an affidavit clarifying the circumstances under which Plaintiffs had left Defendant. Neither party to the arbitration questioned the validity of the Termination Premium.


Summary judgment is appropriate where the record establishes that “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “An issue of fact is genuine if the evidence is such that a reasonable jury could return a...

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