Cutler v. 65 Sec. Plan
Decision Date | 02 July 1993 |
Docket Number | No. CV 92 3491,CV 92 4402,CV 92 5329.,CV 92 3621,CV 92 4124,CV 92 4054,CV 92 3491 |
Citation | 831 F. Supp. 1008 |
Parties | Sylvia CUTLER, et al., Plaintiff, v. The 65 SECURITY PLAN, Defendant. |
Court | U.S. District Court — Eastern District of New York |
John F. Byrne, Margolin & Meltzer, New York City, for Maimonides Hosp Eileen M. Fields, Ronald E. Richman, Chadbourne & Parke, New York City, for the Employer Trustee.
Lawrence V. Kelly, New York City, for National Health Plan Corp.
Lowell Peterson, Meyer, Suozzi, English & Klein, Mineola, NY, for Union Members, Participants and Beneficiaries.
M. Jay Whitman, Associate Gen. Counsel, United Automobile, Aerospace & Agricultural Implement Workers of America, Detroit, MI, for the Intern. Union.
Eugene Eisner, Fannette, Pollack, Eisner, Levy, Pollack & Ratner, New York City, for defendant.
Michael S. Gordon, Counsel to Dist. 65 Security Plan, Washington, DC, Michael D. Felson, Solicitor's Office, U.S. Dept. of Labor, Boston, MA, amicus curiae.
CORRECTED PRELIMINARY MEMORANDUM AND ORDER
TABLE OF CONTENTS I. FACTS .............................................................. 1011 II. LAW ................................................................ 1013 A. Power of the Court to Stay Federal and State Proceedings ........ 1013 B. Eligibility of the Trust for Bankruptcy Protection .............. 1014 1. Generally .................................................... 1014 2. Law Governing ................................................ 1014 3. Applicability to Employee Benefit Plans ...................... 1017 4. District Court's Jurisdiction Over Bankruptcy Proceedings .... 1018 5. Desirability of Bankruptcy for the Fund ...................... 1018 C. Receivership .................................................... 1019 D. Class Action .................................................... 1020 1. Opt-out Class Action ......................................... 1020 2. Mandatory Class Action ....................................... 1020 3. Use of Subclasses ............................................ 1021 E. Quasi Bankruptcy as a Federal Common Law Remedy ................. 1021 F. Negotiated Settlement ........................................... 1023 III. APPLICATION OF LAW TO FACTS ........................................ 1023 IV. CONCLUSION .......................................................... 1024
Defendant's motion for a preliminary stay of all state and federal proceedings against it or its participants or beneficiaries is granted. The court's action is necessary in aid of its jurisdiction in order to protect the limited assets of The 65 Security Plan (the "Fund" or "Plan") while an equitable plan for their distribution is devised. Arguably the Fund is 1) eligible for bankruptcy protection or 2) a receiver may be appointed or 3) a mandatory or 4) opt-out class action can be utilized or 5) a form of "quasi bankruptcy" under federal common law is possible. Any of these devices will enable the court to protect the rights of all creditors of the Fund. Some will more expeditiously provide exigent relief to those with health claims and to health care providers, while protecting the rights of employers and employees presently contributing to the Fund, with less transactional costs. For the moment a choice need not be made since the most desirable way to proceed is by voluntary settlement, if that is possible. The Honorable Milton Mollen is appointed Special Master to assist in maximizing the Fund's assets and to develop a suitable plan for their distribution after consulting with all parties and assisting them in resolving any differences. While the negotiations proceed, the parties may consider alternate legal devices to fix terms of any settlement in a fair and reasonable way. Without making a final decision on what devices would be appropriate, they have been set out below with a preliminary analysis to assist the parties in their discussions.
These six Eastern District cases, consolidated by order of this court dated March 24, 1993, reflect one aspect of the critical crisis in health care facing this nation. They involve claims against the Plan by health care providers and Plan participants or beneficiaries for medical services. The Plan does not appear to have funds on hand sufficient to pay all current and prospective claims.
The Plan is a Taft-Hartley multiemployer trust fund, established and maintained pursuant to section 302(c)(5) of the Labor Management Relations Act, 29 U.S.C. § 186(c)(5). It is an employee benefit plan under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461. Established in 1945, the Fund provides welfare benefits to members of a now defunct local of the United Automobile, Aerospace & Agricultural Implement Workers of America (the "UAW"). The members are largely unskilled and semiskilled employees of the garment center and direct mail shops. Over the years, at least six hundred different employers contributed to the plan on behalf of some forty to fifty thousand participants and beneficiaries. Currently, because of a substantial decrease in union membership due to loss of jobs, only approximately one hundred and fifty different employers now contribute or will contribute to the plan on behalf of some 2,500 to 10,000 participants and beneficiaries.
Over the last several years the Fund has been overwhelmed by the increase in the cost of providing medical benefits to its participants. The downturn in the economy has resulted in contributing employers being unable to adequately support the health benefits provided to participants and beneficiaries. There is now a significant deficit in the Fund. Despite cost-savings measures initiated by the Fund's trustees over the years, by June 1991, more than $30 million was owed to participants and beneficiaries for expenses covered by the fund. There may be as many as 160,000 claims outstanding against the Fund for payment of medical expenses to participants, beneficiaries and health care providers. Failure to pay these claims contributes to the crisis facing many health care providers.
The Fund's assets are being further depleted by the costs of defending and settling hundreds of lawsuits. There are currently 133 cases pending in New York state and federal courts. At least 112 cases are pending in courts in New Jersey. Still other cases are pending in four other states. Claims in the cases against the fund total at least $4 million. Transaction costs in attorneys fees and in conducting discovery are great and growing.
The Fund has two trustees. One represents management; the other represents the union. They have overall responsibility for the Fund. There are no allegations of fraud or mismanagement. A comptroller and independent accounting firm are employed. The Fund has utilized the services of an experienced impartial arbitrator in an attempt to resolve some of its problems.
Since August 1992, the Fund's day-to-day operations have been administered by a Chief Executive Officer with twenty-five years of experience in the field of union benefit funds. He has been charged with restructuring the offices of the Fund. He has attempted to achieve settlements with some creditors and to secure uncollected employer contributions. Under his guidance, the staff of one hundred and twenty has been reduced to twenty. Those who remain have been attempting to handle new claims and computerize the system for the future while at the same time trying to liquidate the past debt. The reduced-staff is inundated with the voluminous paperwork associated with discovery requests. They are also handling hundreds of phone calls daily.
Some of the records of the Fund have been subpoenaed by the federal government in connection with a grand jury investigation. The United States Department of Labor has been reviewing problems faced by the Fund. It has urged the Fund to take the necessary steps to avoid waste of essential assets and to resolve the problems facing the Fund with judicial assistance.
In light of the difficulties associated with the Fund, the union is in the process of entering into a new plan for its dwindling membership. New premiums are being collected from employers through a surcharge program to try to liquidate past debt. These monies are segregated to pay claims for the members in the particular shops on behalf of whom the surcharge is paid.
From February 1991 to October, 1992, when its services were terminated, National Health Plan Corporation ("NHP") served as third party administrator of the medical and hospital plans of the Fund. NHP not only processed claims, but also served as a participating provider organization, providing discount health care services to Fund participants. NHP claims it is owed approximately $18 million dollars in unpaid claims and another $667,000 in fees. It is preparing to file a class action suit on behalf of all participants and providers.
Unquestionably this litigation presents a medical and legal emergency, affecting thousands of people and providers who are hurting financially. The potential transaction costs in the pending litigation could exhaust the Fund's assets and deny recovery to people in need. The plethora of current and potential cases will further clog the courts and result in delays to those claimants who need help.
The Fund moves 1) to appoint a Special Master; 2) to marshall its assets and oversee payment of its obligations and; 3) to stay all current and future federal and state court litigation against the Fund and its trustees, and all actions against participants and beneficiaries of the Fund, pursuant to the All Writs Act, 28 U.S.C. § 1651.
The court issued a preliminary memorandum and order on May 27, 1993, inviting the Government to appear as amicus...
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