L.I. Head Start Child Development Services, Inc. v. Economic Opportunity Com'n, CV 00-7394 (ADS).

• Decision Date: 08 July 2009
• Docket Number: No. CV 00-7394 (ADS).,CV 00-7394 (ADS).
• Citation: 634 F.Supp.2d 290
• Parties: L.I. HEAD START CHILD DEVELOMENT SERVICES, INC., Paul Adams, derivatively on behalf of Community Action Agencies Insurance Group and as class representative of all other persons similarly situated, Plaintiffs, v. ECONOMIC OPPORTUNITY COMMISSION OF NASSAU COUNTY, INC., Economic Opportunity Council of Suffolk, Inc., Yonkers Community Action Program, Inc., and Stella B. Kearse as Representative of the Estate of John L. Kearse, Deceased, Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 290

634 F.Supp.2d 290

L.I. HEAD START CHILD DEVELOMENT SERVICES, INC., Paul Adams, derivatively on behalf of Community Action Agencies Insurance Group and as class representative of all other persons similarly situated, Plaintiffs, v. ECONOMIC OPPORTUNITY COMMISSION OF NASSAU COUNTY, INC., Economic Opportunity Council of Suffolk, Inc., Yonkers Community Action Program, Inc., and Stella B. Kearse as Representative of the Estate of John L. Kearse, Deceased, Defendants.

No. CV 00-7394 (ADS).

United States District Court, E.D. New York.

July 8, 2009.

COPYRIGHT MATERIAL OMITTED

Welby, Brandy & Greenblatt, LLP, by Alexander A. Miuccio, Esq., of Counsel, White Plains, NY, for Plaintiffs.

Mark E. Goidell, Esq., Hauppauge, NY, for the Defendants Economic Opportunity Commission of Nassau County, Inc. and Yonkers Community Action Program Inc.

Barry V. Pittman, Esq., Bay Shore, NY, for Defendant Economic Opportunity Council of Suffolk, Inc.

Law Offices of Frederick K. Brewington, by Frederick K. Brewington, Esq. and Eric M. Sarver, Esq., of Counsel, for Defendant Stella B. Kearse as Representative of the Estate of John L. Kearse, Deceased.

MEMORANDUM OF DECISION AND ORDER

SPATT, District Judge.

This is Chapter III in this interesting interchange between the plaintiff L.I. Head Start Child Development Services, Inc., ("L.I. Head Start"), an employee health and welfare benefit fund and five former associates. These former associates are first, Community Action Agencies Insurance Group ("CAAIG"), a not-for-profit, anti-poverty, tax exempt organization which provided health benefits to its participants who were minorities and low and middle income persons and families. The second, third and fourth former associates of the plaintiffs were all participating organizations in CAAIG, whose members were beneficiaries of the health benefits. They are the Economic Opportunity Commission of Nassau County, Inc. ("EOC Nassau"); the Economic Opportunity Council of Suffolk County, Inc. ("EOC Suffolk"); and the Yonkers Community Action Program, Inc. ("Yonkers CAP"). The fifth and final associate is an individual, namely, John L. Kearse, who was a Trustee and Administrator of CAAIG since its inception in 1983 and Chief Executive Officer of EOC Nassau. Sadly, John Kearse passed away during the pendency of the action, and his estate is represented in this case by Stella B. Kearse.

I. The Prior Proceeding

In a prior lawsuit initiated in 1993, L.I. Head Start brought an action against CAAIG and John L. Kearse, Judith Wilson and Alphonso Anderson, as Trustees of CAAIG. This action concerned the attempt to recover reserves paid to CAAIG by L.I. Head Start after it terminated its participation in CAAIG as of September 1, 1992. On March 3, 2000, this Court rendered a decision in that prior lawsuit in Long Island Head Start Child Development Servs., Inc. v. John L. Kearse et al., 86 F.Supp.2d 143 (E.D.N.Y.2000). In that decision, the Court determined that CAAIG segregated the contributions of each of the participating employers, referred to as the "reserves." The Court directed CAAIG and the trustees of CAAIG to transfer the reserves of L.I. Head Start, which were on hand at the time of its termination, namely, the sum of $497,736, to a trust fund for the benefit of the members of L.I. Head Start, within 60 days from March 3, 2000.

On May 25, 2000 a judgment was entered by the Clerk of the Court against the defendants in the prior action in the sum of $802,831.57, which includes the principal sum of $497,736 plus pre-judgment interest in the sum of $131,271.79, attorneys fees in the sum of $151,375 and costs in the sum of $22,448.78. Apparently, no appeal was taken from this judgment. According to the complaint in the present action, this judgment remains unpaid, except for the sum of $45,375.19, leaving a balance due of $757,456.38 plus interest from December 14, 2000.

II. The Present Proceeding

This is a class action, brought by L.I. Head Start and Paul Adams, derivatively on behalf of CAAIG and as class representatives of all other persons similarly situated. The action is brought against the other three former participating organizations in CAAIG, namely EOC Nassau, EOC Suffolk and Yonkers CAP. Also named as a defendant was John Kearse, the former Trustee and Administrator of CAAIG, and former Chief Executive Officer of EOC Nassau.

Initially, the nature of this action was to seek relief against the named defendants based on alleged various breaches of their fiduciary duty and prohibited transactions. The complaint alleged that (1) the defendants diverted the reserves of L.I. Head Start to pay benefits and administration expenses of the other participating agencies; (2) the defendants' failed to collect delinquent contributions from Yonkers CAP; and (3) the defendants failed to take other actions such as increasing premiums to adequately fund the plan.

In addition, during and after the trial, the plaintiff made motions to amend the complaint and/or to conform the pleadings to the proof with regard to six additional alleged "prohibited transactions" amounting to violations under ERISA § 406, 29 U.S.C. § 1106, as follows:

1. The pledge of CAAIG plan assets to CEDC, an affiliated credit union entity controlled by EOC Nassau, for use as collateral for a loan by CEDC to EOC Nassau.

2. The loan of $36,000 of CAAIG plan assets to EOC Nassau.

3. The failure to collect delinquent employer contributions from EOC Suffolk, which the plaintiffs allege constitutes a lending of money or extension of credit to a party-in-interest.

4. The CAAIG payments of travel expenses to George Grayback, a fiduciary and party-in-interest who is not an employee of CAAIG or the participating agencies.

5. The CAAIG payments of health and welfare claims for George Grayback and Nola Grayback who are not participants or beneficiaries under the CAAIG plan.

6. The CAAIG payments of excessive administrative fees in the form of bonuses to Profile Commercial Corp., a company engaged in employee benefit and group health programs.

Also, in the amended complaint there are two claims for unjust enrichment, the Third and Fourteenth claims for relief. In a prior decision in this action, dated June 3, 2008, 558 F.Supp.2d 378 (E.D.N.Y.2008), applying the six year statute of limitations period, the Court dismissed all the unjust enrichment claims based on events that occurred prior to December 1, 1994. As to the surviving unjust enrichment claims, the Court gave the parties an opportunity to address the issue as to whether "the diversion of the reserves to pay the benefits of the other participants was against equity and good conscience sufficient to sustain an unjust enrichment claim."

In the same June 3, 2008 decision, this Court decided the issues involving the plaintiffs' amendment motions and the defense of the statute of limitations. This decision resolved the issue of the surviving causes of action. The causes of action remaining in this case are as follows:

The Pleaded Causes

1. The defendants' diversion of L.I. Head Start reserves to pay benefits and administrative expenses.

2. The defendants' failure to make the necessary contributions to adequately fund the CAAIG Plan and prevent diversion of the plaintiffs' reserves.

3. The unjust enrichment claims based on events that occurred subsequent to December 1, 1994.

The Added Cause

4. The failure by CAAIG to collect the delinquent arrears in premium payments from EOC Suffolk.

III. The Stipulated Facts

The attorney for the plaintiffs and the attorneys for the defendants EOC Nassau, EOC Suffolk and Yonkers CAP stipulated to the following facts:

1. Plaintiff, L.I. Head Start Child Development Services, Inc., formerly known as Long Island Day Care Services, Inc., is a not-for-profit corporation organized and existing under the laws of the State of New York.

2. Community Action Agencies Insurance Group ("CAAIG") or ("CAAIG Fund") was an employee welfare benefit plan within the meaning of ERISA § 3(1), 29 U.S.C. § 1002(1). [See L.I. Head Start, 86 F.Supp.2d at 144-45].

3. The CAAIG Fund was established for the sole and exclusive purpose of providing health and welfare benefits to employees of the participating/contributing employers within the meaning of ERISA, 29 U.S.C. §§ 1103(c)(1) and 1104(a)(1)(A).

4. The CAAIG Fund provided health, medical, dental and other benefits for the employees of defendant EOC Nassau, defendant EOC Suffolk, and any other employer who became a participating employer.

5. On November 30, 1985, plaintiff L.I. Head Start became a participating employer in the CAAIG Fund.

6. At the time that L.I. Head Start became a participating employer in the CAAIG Fund, defendants EOC Nassau, EOC Suffolk and Yonkers CAP also were participating employers in the CAAIG Fund.

7. As of August 31, 1992, the financial statements of CAAIG indicated that the total amount of the reserves for all contributing employers was $1,117,507.

8. On September 1, 1992, L.I. Head Start elected to terminate its participation in CAAIG and requested the immediate return of the unspent monies in CAAIG's reserves attributable to past contributions made by L.I. Head Start on behalf of its participating employees.

9. On May 25, 2000, this Court entered a judgment in the prior action in favor of L.I. Head Start and the class plaintiffs against CAAIG and its Trustees for the sum of $802,831.57, including interest and attorney's fees.

10. Defendant Kearse served as a trustee of CAAIG since its inception in 1983 to June, 1998. Adrian Fassett ("Fassett") also served as a trustee of CAAIG from 1993 to June 11, 1998, when he resigned. Edward Hull ("Hull") also served as a trustee of CAAIG from 1994 to June 11, 1998, when he resigned.

11. The October 4, 1983 Trust Agreement governing the CAAIG Fund provided for the participating agencies to operate and administer the CAAIG plan.

12. The three defendant agencies, EOC...