I.U.P.A.T. Dist. Council No. 57 Combined Funds ex rel. Trs. of the I.U.P.A.T. Welfare Fund of W. PA v. Hawranko (In re Hawranko)
| Decision Date | 06 April 2021 |
| Docket Number | Case No. 20-21513-TPA,Consolidated at Adv. No. 20-02116-TPA |
| Citation | 627 B.R. 305 |
| Parties | IN RE: Jonathan HAWRANKO, Debtor. I.U.P.A.T. District Council No. 57 Combined Funds on Behalf of the Trustees of the I.U.P.A.T. Welfare Fund of Western PA and The I.U.P.A.T. Western PA Annuity Fund and the International Union of Painters and Allied Trades District Council #57, Plaintiff v. Jonathan Hawranko, William Roetter, and Nikolai J. Barlow, Defendants |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
Thomas P. Agresti, United States Bankruptcy Judge Before the Court for consideration are the Plaintiff's Motion for Summary Judgment against Jonathan Hawranko and William Roetter ("Plaintiff's Motion") filed at Doc. No. 43, and the two, each entitled Defendant's Partial Motion for Summary Judgment ("Debtors' Motions")filed at Doc. Nos. 49 and 53.1 For the reasons set forth below the Court will grant the Debtors' Motions and deny the Plaintiff's Motion , which will result in the entry of judgment in favor of the Debtors and against the Plaintiff, based on the conclusion that the debt owed by the Debtors to the Plaintiff is not excepted from discharge pursuant to 11 U.S.C. § 523(a)(4) .2
The Plaintiff is the I.U.P.A.T. District Council No. 57 Combined Funds on behalf of the Trustees of the I.U.P.A.T. Welfare Fund of Western Pa., the I.U.P.A.T. Annuity Fund (collectively, "the Funds"), and the International Union of Painters and Allied Trades District Council #57 ("Union"). As may be apparent from the name, Plaintiff represents union-related employee benefit funds which were established under and are subject to the relevant provisions of the Employees Retirement and Income Security Act ("ERISA"), 29 U.S.C. § 1001, et. seq .
The two Debtors are Jonathan Hawranko and William Roetter. For several years Hawranko and Roetter were the co-owners of a painting company called Roetters Painting, LLC ("the Company") which entered into a collective bargaining agreement ("CBA")with the Union. During the period from 2016 through 2019 the Company failed to make certain employer contributions for employee fringe benefits as required under the CBA. The Plaintiff takes the position that the two Debtors, in their capacity as owners and officers of the Company, have a responsibility to make good on these unpaid Company contributions. Plaintiff further argues that this responsibility is a debt that is excepted from discharge under Section 523(a)(4) for defalcation while the Debtors were acting in a fiduciary capacity.
The allegations against both Debtors are identical, with the amended complaints against each being broken down into two counts. Count I relates to employee wage withholdings taken by the Company during the period from December 2016 through December 2019 for "union dues and legislative funds." Under the CBA those wage withholdings were then supposed to have been paid over to the Funds by the Company, but they were not. The total amount involved in Count I is $11,720.45. The amended complaints allege that by failing to ensure that these wage withholdings were paid over to the Funds by the Company the Debtors committed a fraud or defalcation and also conversion. The Parties have stipulated that the Plaintiff is entitled to judgment as to Count I and the Court previously approved those stipulations in orders providing that debt in the amount of $11,720.45 is excepted from discharge under Section 523(a)(4) as to each of the Debtors. See , Doc. Nos. 71, 72. Thus, Count I has been resolved and is no longer at issue.
Count II remains in dispute. It relates to fringe benefit contributions for medical and annuity benefits that should have been paid by the Company to the Funds during the period from December 2016 through December 2019 pursuant to the CBA (and certain "Trust Agreements" related to the Funds, see discussion below) based on the number of hours worked by employees of the Company, but which were not paid. To be clear, these were not monies that were withheld from employee wages by the Company and then not paid over, as in Count I. The amount involved in Count II appears to be in dispute. Plaintiff alleges that there were $158,481 in such unpaid contributions, and argues that with interest the amount due is roughly $170,000. Plaintiff further alleges that this amount should be excepted from discharge under Section 523(a)(4) based on the Debtors' defalcation while acting in a fiduciary capacity.3
The Court relates the following facts as taken from the amended complaints and answers, the statements of admitted fact filed by the Parties in connection with the Motions , and the depositions of the Debtors which were attached to the Plaintiff's Motion .
Hawranko and Roetter went to high school together and graduated around 2004. In around 2014 they started working together in a painting business. In 2015 the Company was formed to operate the business, originally with Hawranko as a 30% owner and Roetter as a 70% owner. Around 2015 when the CBA was signed (see below) that changed to a 50-50 ownership. Roetter was held out as the President of the Company and Hawranko as the Vice-President. Throughout its lifetime, management and control of the Company essentially rested only in the Debtors as a two-man operation. The Company had no office of its own and no clerical staff. Hawranko, operating out of his home, administered to the paperwork, billing and payroll for the Company, using QuickBooks. He would occasionally go to job sites to drop off materials. Roetter was primarily out in the field on job sites doing the managing and scheduling of the painting jobs obtained by the Company and meeting with customers. The Company went out of business in 2019.
From 2016 through 2019 the Company maintained a checking account at PNC Bank. Both Hawranko and Roetter were authorized to sign checks on the account and only one signature was required. Hawranko and Roetter did not receive set salaries from the Company. Instead, each would periodically withdraw funds from the PNC account that were designated as "guaranteed payments" for QuickBook purposes and those payments were their income. The two Debtors took the following amounts of such payments from the Company:
| Hawranko | Roetter | |
| 2016 | $65,084.90 | $101,242.30 |
| 2017 | $39,068.58 | $ 92,465.37 |
| 2018 | $31,273.96 | $ 95,373.73 |
| 2019 | $28,994.79 | $ 92,939.34 |
| $164,422.23 | $382,020.74 |
There was no agreement or "method" between Hawranko and Roetter as to the amount each could take out of the Company in these "guaranteed payments," though they would talk before a large amount was withdrawn. No W-2 was ever issued by the Company to either of them for these amounts. Hawranko testified that "ideally" the two were planning to take withdrawals from the Company two times per month, but that did not always work out and he only took a withdrawal when there were funds available.
The Debtors' painting business had originally been a non-union operation. That changed on January 15, 2015. when Roetter signed the CBA as President of the Company, an event that was witnessed by Hawranko. The original CBA was in effect until May 31, 2017, and was then continued thereafter until the Company closed. The CBA required the Company to pay Union employees so much per hour, plus provide an additional amount of fringe benefits per hour. With respect to the fringe benefits, the CBA provided:
Each employer working under this Agreement must contribute the sum ... for each hour worked or portion thereof, by all employees covered by this agreement. Such payment to be paid to the District Council 57 Insurance and Welfare Fund monthly...
See , June 1, 2017 through May 31, 2020, CBA at Art. IX, Section 1 (). There were also provisions in the CBA pursuant to which the Company agreed to be bound by and comply with the "Trust Agreements" that govern the Funds. Thus:
All Employers signatory to this Agreement hereby agree to be bound by and comply with the Agreement and Declaration of Trust as though he/she had actually signed the same ...
Id. at Art. IX, Section 5. Furthermore:
The payments to the Pension Fund required above shall be made to the I.U.P.A.T. Union and Industry Pension Fund, which was established under an Agreement and declaration of trust dated April 1, 1967. The Employer hereby agrees to be bound by and to the said Agreement and declaration of trust, as amended from time to time, as though he actually signed the same.
Id. at Art. X, Section 1. There are similar provisions for payments to the I.U.P.A.T. of Western Pa. Annuity Fund. See, id. at Art. XII, Section 1, 3.
The Court was not provided with complete copies of these "Trust Agreements," but portions of each are attached to the amended complaint as Exhibit B and of particular relevance here is the following provision contained in each:
No contributing employer shall have any right, title or interest to any sum payable by such Employer to the Fund, but not yet paid into the Fund. Title to all monies paid into and/or due and owing such Fund shall be vested in the trustees of such Fund.
See , Article V, Section 3, Paragraph 3 of the Welfare Fund document and Appendix "A," Section 1, Paragraph (c) of the Annuity Fund document.
Under the CBA and the Trust Agreements the Company was required to submit monthly reports to the Funds showing the number of hours union employees of the Company worked in the preceding month and how much, in employer contributions, was therefore due to be paid to the Funds under the CBA based on those hours. Hawranko, with the knowledge of Roetter, prepared and submitted the reports each month, but no money was sent in with the reports – or at least not all the money that was required per the CBA although the record is a little fuzzy on that point. On September 30, 2019, the Funds filed a complaint in confession of judgment in the District Court against the Company over the failure to pay the benefits based...
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