Carpenters Pension Trust Fund for N. Cal. v. Moxley

• Decision Date: 20 August 2013
• Docket Number: No. 11–16133.,11–16133.
• Citation: 734 F.3d 864
• Parties: CARPENTERS PENSION TRUST FUND FOR NORTHERN CALIFORNIA, Appellant, v. Michael Gordon MOXLEY, aka MGM's Cabinet Installation Services, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

734 F.3d 864

CARPENTERS PENSION TRUST FUND FOR NORTHERN CALIFORNIA, Appellant,

v.Michael Gordon MOXLEY, aka MGM's Cabinet Installation Services, Appellee.

No. 11–16133.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted June 13, 2013.

Filed Aug. 20, 2013.

Christian L. Raisner (argued), Emily P. Rich, Roberta D. Perkins, Weinberg, Roger & Rosenfeld, Alameda, CA, for Appellant.

Wayne A. Silver (argued), Sunnyvale, CA; R. Kenneth Bauer, Law Offices of R. Kenneth Bauer, Walnut Creek, CA, for Appellee.

Appeal from the United States District Court for the Northern District of California, Richard Seeborg, District Judge, Presiding. D.C. No. 3:10–cv–00756–RS.

Before: MARY M. SCHROEDER and CONSUELO M. CALLAHAN, Circuit Judges, and SARAH S. VANCE, Chief District Judge.^*

OPINION

SCHROEDER, Circuit Judge:

INTRODUCTION

When contractors in the construction industry stop working under the terms of a collective bargaining agreement, but continue in business, they cannot simply stop making payments to the pension fund administered under that agreement. Pursuant to the Employee Retirement Income Security Act (“ERISA”), they are liable to the fund in the amount determined necessary to ensure payment of benefits to employees whose rights have vested. 29 U.S.C. §§ 1381, 1391. The issue in this appeal is whether that “withdrawal liability” is dischargeable in bankruptcy. The answer requires some analysis of possible differences between withdrawal liability and liability for delinquent contributions, but we ultimately agree with the result reached by both the bankruptcy court and the district court that the debt is dischargeable. The pension fund cannot establish that the debtor is a fiduciary with respect to money it owes as withdrawal liability.

BACKGROUND

The debtor is Michael G. Moxley, who did business as MGM's Cabinet Installation Service. In 1999 he became a signatory to the multiemployer bargaining agreement entitled “The 46 Northern California Counties Carpenter's Master Agreement of Northern California,” (the “Agreement”). He was required under the Agreement to make contributions to the Carpenters Pension Trust Fund for Northern California (the “Fund”). When the Agreement expired in June 2004, he was no longer a signatory to a collective bargaining agreement. He stopped making payments to the Fund, but continued doing carpentry work in the Bay Area.

In March of 2005 the Fund notified Moxley that because he was still doing work covered by the Agreement, he was subject to withdrawal liability pursuant to 29 U.S.C. § 1381. That amount had been determined to be $172,045 and for purposes of this appeal is not disputed. The Fund filed suit in United States District Court for the Northern District of California, but proceedings there were stayed when Moxley filed for bankruptcy.

In the bankruptcy court, Moxley sought a discharge of his debt to the Fund, and the Fund filed a complaint under 11 U.S.C. § 523(c) to prevent discharge. The Fund sought to establish that the debt qualified as one created via defalcation by a fiduciary under § 523(a)(4). It provides that a bankruptcy discharge “does not discharge an individual debtor from any debt ... for fraud or defalcation while acting in a fiduciary capacity....” Id.

The Fund's position was that because it is a trust fund, and those who administer, own, or control assets of a trust fund are fiduciaries, Moxley was a fiduciary for funds in his control representing the amount of withdrawal liability that he should pay to the Fund. In order to prevent the discharge, the Fund therefore had to establish both that Moxley was acting in a fiduciary capacity with respect to the money he had not paid to the Fund, and that the failure to pay constituted “defalcation” within the meaning of the Code. We need not reach the issue of defalcation, because we determine Moxley was not a fiduciary.

In trying to establish that Moxley was a fiduciary under the Bankruptcy Code, the Fund faces a number of hurdles, the first, of course, is having to show that Moxley was a fiduciary of the Fund pursuant to ERISA. Fiduciaries under ERISA are defined as entities who manage a plan, give investment advice to a plan, or control assets of a plan. ERISA provides in 29 U.S.C. § 1002(21)(A) that a fiduciary is one who:

[1] exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, [2] renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or [3] has any discretionary authority or discretionary responsibility in the administration of such plan.

Since Moxley has had nothing to do with the administration or investment policy of the plan, the only conceivable part of the definition that might apply is one who “exercises ... control respecting ... disposition of [the Fund's] assets.” Id. The Fund therefore argued in the bankruptcy court that its “assets” include money that is owed to the Fund, and that Moxley has exercised control over that money so as to become a fiduciary.

The problem with this simple proposition is that money that is owed to the Fund is not in the Fund, and is therefore not yet a Fund “asset.” That is what this court held in Cline v. Indus. Maint. Eng'g & Contracting Co., 200 F.3d 1223 (9th Cir.2000). There, we dealt with a claim brought by employees against their employers, alleging that the employers' failure to contribute adequately to the employee benefit plan constituted a prohibited transaction under ERISA. While we rejected the contention that the employers had failed to contribute adequately to the plan, we also said that the claim failed for the independent reason that unpaid funds are not plan assets because they have not yet been paid. Id. at 1234. “Until the employer pays the employer contributions over to the plan, the contributions do not become plan assets over which fiduciaries of the plan have a fiduciary obligation.” Id.

Thus, the bankruptcy court in this case, relying on Cline and our earlier opinion in Collins v. Pension & Ins. Comm. of S. Cal. Rock Products & Ready Mixed Concrete Ass'ns, 144 F.3d 1279 (9th Cir.1998), held that Moxley was not a fiduciary with respect to the debt he owed the Fund. It said that the Fund's theory conflicted with Cline, Collins, and “numerous cases ... holding that persons owing contributions are not automatically ERISA fiduciaries.”

In its appeal to the district court, therefore, the Fund argued that money a contractor owed to the Fund as a result of the bargaining agreement could be considered an asset of the Fund if the agreement itself so provided. The Fund contended this agreement did, and pointed to the Article of the Agreement establishing the Fund and the employers' obligations to it. In relevant part, the Agreement defined the Fund as consisting of “all Contributions required by the Collective Bargaining Agreement ... to be made for the establishment and maintenance of the Pension Plan....”

The Fund contended that Moxley's debt to the Fund was in the nature of “contributions required ... to be made,” and, for that reason, was within the Agreement's definition of plan assets. This would make Moxley a fiduciary by virtue of his control over those assets. See Trustees of S. Cal. Pipe Trades Health & Welfare Trust Fund v. Temecula Mech., Inc., 438 F.Supp.2d 1156, 1163 (C.D.Cal.2006) (concluding that unpaid contributions, though generally not plan assets, could be made plan assets by contract between the employer and the union).

Moxley pointed out, however, that under the Fund's theory he became a fiduciary only because he did not make the payment. This court has held that where a statute creates a fiduciary relationship, as the Fund contends ERISA does here, that fiduciary relationship will not be recognized for the purposes of § 523(a)(4) if the claimed fiduciary relationship resulted from the wrongdoing that created the debt. In re Hemmeter, 242 F.3d 1186, 1190 (9th Cir.2001). The fiduciary status has to be in existence before the debt was owed. Id. (the fiduciary obligations must exist “prior to the alleged wrongdoing.”). The district court agreed that under the Fund's theory, Moxley's own wrongdoing, i.e., his failure to pay, created the asserted fiduciary relationship. Relying on Hemmeter, the district court affirmed the bankruptcy court.

The district court also rejected the Fund's contention that Moxley had waived his right to discharge the debt in bankruptcy by failing to contest the debt in arbitration. ERISA requires that all disputes over withdrawal liability be resolved by arbitration. Teamsters Pension Trust Fund–Bd. of Trustees of W. Conference v. Allyn Transp. Co., 832 F.2d 502, 504 (9th Cir.1987). The district court ruled that this was not a dispute over the existence of the liability, but an issue of discharge governed by § 523(a)(4). The court rejected the Fund's contention that the ERISA arbitration provision can override the Bankruptcy Code.

In this appeal, the Fund contends that Moxley is a fiduciary of the Fund because he controlled money that he owed to the Fund for withdrawal liability, which his agreement with the union recognized as an asset of the Fund. The Fund also reasserts its argument that Moxley's failure to contest the withdrawal liability in arbitration resulted in a waiver of his right to seek a discharge in bankruptcy. Moxley raises a threshold jurisdictional argument that Article III of the Constitution prohibits the bankruptcy court from adjudicating the Fund's claim, so we turn to that first.

DISCUSSION

I. The Bankruptcy Court Had Jurisdiction to Adjudicate the Dischargeability of the Fund's Claim Against Moxley

After the district court's decision in this case, the Supreme Court decided Stern v. Marshall, ––– U.S. ––––, 131...