In re Tsikouris

• Decision Date: 30 March 2006
• Docket Number: Bankruptcy No. 04-63963 JPK.,Adversary No. 04-06220 JPK.
• Citation: 340 B.R. 604
• Parties: In re Anthony Pete TSIKOURIS Debtor. Allan Delange, Chairman and William Blumm, Secretary, on the Behalf of Northwest Indiana Painters Welfare Fund; and John Arvin, Secretary on the Behalf of the Northwest Indiana Painters Joint Apprenticeship & Training Trust Fund, Plaintiffs, v. Anthony Pete Tsikouris, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

340 B.R. 604

In re Anthony Pete TSIKOURIS Debtor Allan Delange, Chairman and William Blumm, Secretary, on the Behalf of Northwest Indiana Painters Welfare Fund; and John Arvin, Secretary on the Behalf of the Northwest Indiana Painters Joint Apprenticeship & Training Trust Fund, Plaintiffs, v. Anthony Pete Tsikouris, Defendant.

Bankruptcy No. 04-63963 JPK.

Adversary No. 04-06220 JPK.

United States Bankruptcy Court, N.D. Indiana, Hammond Division.

March 30, 2006.

Samuel T. Miller, Esq., Munster, IN, for Defendant, Anthony Pete Tsikouris.

Thomas E. Moss, Esq., Paul T. Berkowitz & Associates, Ltd., Chicago, IL, for Plaintiffs.

MEMORANDUM OF DECISION AND ORDER

J. PHILIP KLINGEBERGER, Bankruptcy Judge.

This adversary proceeding was initiated by the Plaintiffs by a complaint filed on November 12, 2004 alleging that the debt owed by the defendant/debtor Tsikouris is excepted from discharge pursuant to 11 U.S.C. § 523(a)(4). The record discloses that service of process was properly made, and that Tsikouris appeared by counsel, who filed an answer to the complaint on January 10, 2005. On February 18, 2005, at a preliminary pretrial conference, the parties indicated to the Court that the facts necessary for final determination of this matter were not in dispute. Therefore, the Court determined that the final disposition of this case would be based upon a stipulated record filed by the parties along with memoranda of law with respect to their contentions based thereon. The Parties' Stipulation of Facts was filed on June 22, 2005, and this matter being fully briefed is before the Court for a final determination. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a), and N.D.Ind.L.R. 200.1(a)(2). As agreed by the parties, this matter constitutes a "core" proceeding as defined by 28 U.S.C. § 157(b)(2)(I).

I. Materials to be Considered by the Court

This case has been submitted to the Court on a stipulated record, and thus the factual record is comprised exclusively of the evidence provided by the Parties' Stipulation of Facts filed on June 22, 2005 ("Stipulation"). Those facts are the following:

1. Plaintiffs are employee benefit funds within the meaning of and subject to the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq. ("ERISA"), providing benefits for employees working within this judicial district. [Stipulation ¶ 4].

2. Local Union # 460 Northwest Indiana International Union of Painters & Allied Trades (Local # 460) is a labor organization engaged in representing and acting for its members in the construction industry. Local Union No. 8 of Gary and Vicinity of the International Brotherhood of Painters and Allied Trades ("Local Union # 8") was a labor organization engaged in representing and acting for its members in the construction industry; Local Union No. 8 and its Trust Funds have been merged with the Union and its Trust Funds. [Stipulation ¶ 5].

3. At all times material to this adversary proceeding, Tsikouris has been the owner and operator of a construction company doing business as Tsikouris Construction. [Stipulation ¶ 6].¹

4. As the owner and operator of his business, Tsikouris had authority over the contractual relationships and financial transactions of that company. [Stipulation ¶ 7].

5. On June 23, 1998, Defendant Anthony Tsikouris d/b/a Tsikouris Construction signed a Memorandum of Agreement with Local Union No. 8. The Memorandum of Agreement adopted Local Union No. 8's collective bargaining agreement with the Northwest Indiana Chapter of Painting and Decorating Contractors of America and amendments thereto and subsequent agreements between these entities. By signing the Memorandum of Agreement, Tsikouris also adopted the terms and conditions of any Trust Funds Agreements identified in the Collective Bargaining Agreement ("Trust Agreements"). Tsikouris did not thereby become a named administrator of any Trust Fund nor a member of the Plaintiff Union. The collective bargaining agreement and the Trust Agreements obligated Tsikouris to (1) submit monthly reports of the hours worked by Local Union No. 8's members for his company, and (2) make payments of fringe benefit contributions and payroll deductions based on the reported hours worked. Tsikouris also agreed to permit audits to confirm compliance with the collective bargaining agreement(s) and the Trust Fund Agreements. [Stipulation ¶ 8].

6. On September 13, 2001, Tsikouris d/b/a Tsikouris Construction signed a Memorandum of Agreement with Local # 460. The Memorandum of Agreement adopted Local Union No. 8's collective bargaining agreement with the Finishing Contractors Association and amendments thereto. By signing the Memorandum of Agreement, Tsikouris also adopted the terms and conditions of any Trust Funds Agreements ("Trust Agreements"). Tsikouris did not thereby become a named administrator of any Trust Fund nor a member of the Plaintiff Union. The collective bargaining agreement and the Trust Agreements obligated Tsikouris to (1) submit monthly reports of the hours worked by Local Union No. 8's members for his company, and (2) make payments of fringe benefit contributions and payroll deductions based on the reported hours worked. Tsikouris also agreed to permit audits to confirm compliance with the collective bargaining agreement(s) and the Trust Fund Agreements. [Stipulation ¶ 9].

7. During the period from January 1, 1999 through December 31, 2002 (the "audit period"), Tsikouris employed members of Local Union No. 8 and Local # 460 and thereby became obligated to pay contributions and payroll deductions to Plaintiffs, Local # 460 and Local Union No. 8 and its Trust Funds.² [Stipulation ¶ 10].

8. The three audits performed for the years 1999 through 2002 revealed that Tsikouris failed to pay all the monthly contributions due Plaintiffs and Local Union No. 8's Trust Funds, plus contractually required interest and liquidated damages on the delinquent principal in the total amount of $35,305.99. [Stipulation ¶ 11].

9. During the audits period, Defendant Tsikouris maintained funds in his bank accounts.³ [Stipulation ¶ 12]. Tsikouris failed and refused to pay or account for the monies owed to Plaintiffs. [Stipulation ¶ 13]. Instead, Defendant Tsikouris decided to, and did, pay monies from his company's accounts to others (including himself or his family members, Company and Corporation) rather than pay the delinquent contributions to Plaintiffs.⁴ Id.

10. Tsikouris possessed and exercised discretionary authority over the funds in his bank accounts that could have been paid to Plaintiffs. [Stipulation ¶ 14].

II. Standard of Proof for Non-Dischargeability under 11 U.S.C. § 523(a)(4)

11 U.S.C. § 523(a)(4) provides that a debt is excepted from discharge if the debt is "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." There are no assertions in this case of embezzlement or larceny. In very general terms, Tsikouris' debt will be excepted from discharge if the Court finds that a fiduciary relationship existed between the parties, and that the debt arose as a result of fraud or defalcation in the context of that fiduciary capacity. In re Eisenberg, 189 B.R. 725, 730 (Bankr. E.D.Wis.1995).

In an adversary proceeding to determine the nondischargeability of a debt, the burden of proof is on the plaintiff as to each element of the statutory exception to discharge; In re Kreps, 700 F.2d 372, 376 (7th Cir.1983); Zygulski v. Daugherty, 236 B.R. 646, 653 (N.D.Ind. 1999), citing, Matter of Scarlata, 979 F.2d 521, 524 (7th Cir.1992). Furthermore, exceptions to discharge are to be construed strictly against the creditor and liberally in favor of the debtor; Matter of Scarlata, 979 F.2d at 524 (citing, In re Zarzynski, 771 F.2d 304, 306 (7th Cir.1985)). The United States Supreme Court has held that the standard of proof in non-dischargeability proceedings under § 523(a) is a preponderance-of-evidence standard rather than the more stringent standard of clear and convincing evidence; Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

III. Legal Analysis

The facts of this case may be distilled down to the following essence. Tsikouris was the owner of a business, operated as a sole proprietorship, which employed individuals who were subject to the terms of a collective bargaining agreement entered into between Tsikouris and a union. The union maintained certain employee benefit plans, administered separately from the union itself, to which Tsikouris was contractually obligated to make payments on behalf of the union members he employed from time to time in his business. The benefit plans are subject to the terms of ERISA. Tsikouris failed to make payments as he had promised to these plans; these payments were solely the contractual obligation of Tsikouris as an employer, and were not in any manner derived from funds ostensibly withheld from the employee's wages which were then to be remitted to the plans on behalf of the employees from whom withholdings had been made. The plans are administered by a trustee or trustees; however, Tsikouris never had any involvement with the plans or their management.

As so distilled, the issue in this adversary proceeding is whether the amount of the payments not made by Tsikouris to the union employee benefit plans for the employer portion of benefit plan contributions is a debt of Tsikouris excepted from discharge by operation of 11 U.S.C. § 523(a)(4), due to "fraud or defalcation while acting in a fiduciary capacity." And that is the sole issue presented in this case.

The Plaintiffs' counsel has done a yeoman's job of presenting a plethora of case law to the Court which concerns both the issue before the Court, and the collateral issue of the personal liability of a corporate officer or principal for amounts not paid by a corporate employer to an ERISA...