Diduck v. Kaszycki & Sons Contractors, Inc.

• Decision Date: 01 January 1980
• Citation: 974 F.2d 270
• Parties: , 15 Employee Benefits Cas. 2585 Harry J. DIDUCK, individually and as a participant in the Local 95 Insurance Trust Fund and the Local 95 Pension Fund, and on behalf of all other persons who are, will be, or have at any time since
• Court: U.S. Court of Appeals — Second Circuit

Page 270

974 F.2d 270

61 USLW 2236, 15 Employee Benefits Cas. 2585

Harry J. DIDUCK, individually and as a participant in the

Local 95 Insurance Trust Fund and the Local 95 Pension Fund,

and on behalf of all other persons who are, will be, or have

at any time since January 1, 1980 been participants or

beneficiaries in the Funds, similarly situated, Plaintiff-Appellant-Cross-Appellee, v. KASZYCKI & SONS CONTRACTORS, INC.; William Kaszycki; and Trustees House Wreckers Union Local 95 Insurance

Trust Fund and House Wreckers Union

Local 95 Pension Fund,

Defendants-Appellees,

John Senyshyn; Trump-Equitable Fifth Avenue Company;

Donald J. Trump, doing business as The Trump Organization;

the Equitable Life Assurance Society of the United States;

Donald J. Trump, Defendants-Appellees-Cross-Appellants.

Nos. 805, 806 and 807, Dockets 91-7618, 91-7642 and 91-7644.

United States Court of Appeals, Second Circuit.

Argued Dec. 12, 1991.

Decided Aug. 31, 1992.

Wendy E. Sloan, New York City (Burton H. Hall, Hall & Sloan, of counsel), for plaintiff-appellant-cross-appellee Harry J. Diduck.

Robert Wang, New York City (Michael C. Simmons, Mait, Wang & Simmons, of counsel), for defendant-appellee-cross-appellant John Senyshyn.

Jay Goldberg, Jay Goldberg, P.C., New York City (Milton S. Gould, Fran M. Jacobs, Shea & Gould, of counsel), for Trump defendants-appellees-cross-appellants.

Arthur N. Lambert, New York City (Kenneth L. Aron, Lambert & Weiss, of counsel), for defendants-appellees Trustees House Wreckers Union Local 95 Ins. Trust Fund and House Wreckers Union Local 95 Pension Fund.

Before: FEINBERG, NEWMAN and CARDAMONE, Circuit Judges.

CARDAMONE, Circuit Judge:

This suit stems from the construction of Trump Towers at Fifth Avenue and 56th Street in Manhattan. This marble-sheathed building was built by Trump-Equitable Fifth Avenue Co. (Trump-Equitable), a partnership of Donald J. Trump and the Equitable Life Assurance Society of the United States. This case illustrates an immutable law with respect to falsehoods--as immutable as the one respecting gravity Sir Isaac Newton conceived upon seeing an apple fall from a tree: having first manufactured a falsehood, a person is forced to invent more to maintain it; yet, as here, in the end, time generally reveals what a falsehood hopes to hide.

This appeal from the United States District Court for the Southern District of New York (Stewart, J.) challenges: 1) a finding that a union official fraudulently breached fiduciary duties in violation of § 404 of the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1101 et seq., as amended (ERISA); 2) a holding that a non-fiduciary may be jointly and severally liable with a fiduciary for knowingly participating in a breach of fiduciary duties under ERISA; 3) a finding that defendants Trump-Equitable, the Trump Organization, Inc., Donald J. Trump, Donald J. Trump d/b/a The Trump Organization, and the Equitable Life Assurance Society of the United States (Trump defendants) knowingly participated in the union official's breach; 4) an award of $325,415.84 in damages; 5) a refusal to award liquidated or "double interest" damages under ERISA § 502(g)(2); 6) a holding that punitive damages were not available under ERISA

§ 409(a); 7) an award of prejudgment interest calculated pursuant to 26 U.S.C. § 6621 for a total award of $768,374.70; 8) a finding that plaintiff lacked standing to bring a derivative action under § 515 of ERISA for failure to satisfy the demand requirement of Fed.R.Civ.P. 23.1; 9) a dismissal of the funds' trustees as defendants; and 10) a holding that plaintiff's common law cause of action for fraud was preempted under ERISA § 514(a).

FACTS

Trump-Equitable contracted in January 1980 with Kaszycki & Sons Contractors, Inc. (Kaszycki) to demolish the Bonwit Teller building that occupied the site of the planned Trump Tower complex in Manhattan. Kaszycki, responsible for providing labor, equipment and supplies, employed undocumented non-union workers recently arrived from Poland. These Polish workers were paid "off-the-books," with no records kept, no taxes withheld, and pay not in accordance with wage laws. See Donovan v. Kaszycki & Sons Contractors, Inc., 599 F.Supp. 860 (S.D.N.Y.1984). Shortly after the New York Times ran a story on the demolition on March 16, 1980, union workers from the House Wreckers Union Local 95 began working at the site. Though the Polish workers were told they would be discharged, some continued working for a few more months. The collective bargaining agreement between the union and Kaszycki ran from July 1, 1978 through June 30, 1981. It obligated Kaszycki to make contributions to Local 95's Insurance Trust Fund and Pension Fund at the rate of eight and ten percent, respectively, for total wages paid to workers covered by the agreement. Thus, contributions on behalf of the Polish workers working under the agreement were due the union funds.

Defendant John Senyshyn, as president of Local 95, was a trustee (with two other union officials and three employer representatives) of the Pension Fund and (with one other union official and two employer representatives) of the Insurance Trust Fund. He began work at the job site on March 24, 1980 and served as the union's shop steward for three weeks or until the middle of April. After working at another site briefly, he returned to the Trump job until its completion in August 1980. John Osijuk succeeded Senyshyn as shop steward. The shop steward is required to complete and file with the union weekly reports listing all workers, hours worked, and wages. The union ordinarily compares these reports with the weekly payroll reports submitted by the employer to determine whether the employer is making the fund contributions required under the labor contract. Neither Kaszycki's nor Senyshyn's (and later Osijuk's) reports revealed the presence of the Polish workers as employees at the demolition site. Consequently, contributions owing the funds for their work were not made.

Kaszycki began experiencing financial difficulties and was unable to make the contributions required by the agreement, prompting Local 95 to threaten work stoppages. It was on account of these economic difficulties that a default judgment was entered against Kaszycki in the first district court proceeding. As a result, the demolition job's finances were thereafter assumed by Thomas Macari, vice-president of Trump-Equitable and its manager in charge of the demolition. On May 9 a bank account was opened in the name of Kaszycki & Sons that required Macari's signature for any withdrawals and on all checks. The bank signature card (falsely) identified Macari as vice-president of Kaszycki. After May 9 Macari oversaw all payments regarding the demolition of Bonwit Teller and arranged for Trump-Equitable to make payments to the union funds when Local 95 threatened to shut down the job. Before authorizing these payments, Macari consulted Kaszycki's reports--none of which included the Polish workers--and authorized six payments totaling $68,000 to the funds.

Plaintiff Harry J. Diduck, representing participants in and/or beneficiaries of the funds, brought a class action in the Southern District of New York alleging that defendant Senyshyn breached his fiduciary duties in violation of § 404 of ERISA, 29 The district court initially dismissed the breach of fiduciary duty claim as barred by the statute of limitations and dismissed the derivative action on the ground that as the funds' trustees had not breached their fiduciary duties, Diduck lacked standing. See No. 83 Civ. 6346 (CES) (S.D.N.Y. July 18, 1988). On appeal we reversed and remanded. Diduck v. Kaszycki & Sons Contractors, Inc., 874 F.2d 912 (2d Cir.1989) (Diduck I ).

                U.S.C. § 1104.   Plaintiff's complaint subsequently was amended to include an allegation that the Trump defendants knowingly participated in, and therefore were jointly and severally liable for losses caused by, Senyshyn's breach.   Diduck also asserted a derivative claim on behalf of the funds alleging the Trump defendants are liable as an "employer" for unpaid contributions under § 515 of ERISA, 29 U.S.C. § 1145
                

When the matter came before it a second time, the trial court found Senyshyn breached his fiduciary duties to the funds by failing to seek contributions from the employer on behalf of the Polish workers and that this breach involved fraud or concealment and damaged the funds to the extent of the underpayment. It also determined that the Trump defendants (through Macari and Trump-Equitable) knowingly participated in the breach, and thus were jointly and severally liable for the losses sustained by the funds. The amount of contributions that should have been made on behalf of the Polish workers from January 1980 through June 1980 was determined to be $325,415.84. Prejudgment interest from April 1, 1980 was added to this total. Judgment was accordingly entered in favor of plaintiff Diduck in the amount of $768,374.70. Plaintiff's derivative action under § 515 was dismissed. The decisions of the district court from which the instant appeal and cross-appeal have been taken are reported at 737 F.Supp. 792 (S.D.N.Y.1990) and 774 F.Supp. 802 (S.D.N.Y.1991).

DISCUSSION

I Senyshyn's Liability

Because the liability of the Trump defendants hinges on that of Senyshyn, the first question we address is his liability, an issue raised in the cross-appeal. In Diduck I, we reversed the district court's statute of limitations dismissal of Diduck's breach of fiduciary duty claim, noting that where the breach of fiduciary duty involves fraud or concealment, an action is timely if brought within six years after the breach is discovered. 874 F.2d at 919. See 29 U.S.C. § 1113(a); Fink v. National Sav. & Trust Co., 772 F.2d 951, 956 (D.C.Cir.1985). As a trustee of the funds Senyshyn owed them a fiduciary duty. See 29 U.S.C. § 1002(21)(A); Schaefer v. Arkansas Medical Soc'y, ...