L.I. Head Start Child Dev. V. Economic Opportunity, CV 00-7394(ADS).

• Decision Date: 03 June 2008
• Docket Number: No. CV 00-7394(ADS).,CV 00-7394(ADS).
• Citation: 558 F.Supp.2d 378
• Parties: L.I. HEAD START CHILD DEVELOPMENT SERVICES, INC., Paul Adams, derivatively on behalf of Community Action Insurance Agencies Group and class representatives 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

558 F.Supp.2d 378

L.I. HEAD START CHILD DEVELOPMENT SERVICES, INC., Paul Adams, derivatively on behalf of Community Action Insurance Agencies Group and class representatives 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.

June 3, 2008.

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

Mark E. Goidell, Esq., Hauppauge, NY, for 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 the second installment of a continuing saga involving an employee health and welfare benefit fund; a former participating not-for-profit organization; three participating not-for-profit organizations; and a trustee of the fund. This action was commenced on December 13, 2000. Primarily, it is based on alleged violations of the Employee Retirement Income Security Act of 1974 ("ERISA") 29 U.S.C. § 1001, et seq.

ERISA is a comprehensive statute enacted to protect the interests of participants in employee benefit plans and their beneficiaries "by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans." ERISA § 2(b), 29 U.S.C. § 1001(b). Section 404 of ERISA, 29 U.S.C. § 1104, sets forth a fiduciary's basic duties, as derived from traditional trust law principles. Pursuant to this section, fiduciaries must act "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." Whitfield v. Tomasso, 682 F.Supp. 1287, 1301 (E.D.N.Y.1988). Thus, as fiduciaries, the Trustees of the defendant not-for-profit organizations and the defendant-trustee have a duty to act with care, skill, prudence and diligence in the management of the Fund. Id.

I. THE PRIOR PROCEEDING

The plaintiff L.I. Head Start Child Development Services, Inc. ("L.I. Head Start") was a participating agency in the Community Action Agencies Insurance Group ("CAAIG") from November 30, 1985 to September 1, 1992. The purpose of CAAIG was to provide health benefits to the participants who were minorities and low and middle income persons and families. This was an attempt to provide quality health services to low income people.

In a decision made in a prior action initiated by L.I. Head Start, Long Island Head Start Child Development Services, Inc. v. John L. Kearse, et al, 86 F.Supp.2d 143 (E.D.N.Y.2000), ("The CAAIG Action"), this Court determined that: when L.I. Head Start withdrew as a participating employer in CAAIG as of September 1, 1992, the surplus reserves allocable to contributions made on behalf of L.I. Head Start's participating employees was the sum of $497,736, as the L.I. Head Start share of the reserves. The Court notes that the defendants in the prior lawsuit were John L. Kearse, Judith Wilson and Alphonso Anderson as Trustees of CAAIG and CAAIG itself. The other CAAIG participating members: namely, Economic Opportunity Commission of Nassau County, Inc. ("EOC Nassau"), Economic Opportunity Council of Suffolk County, Inc. ("EOC Suffolk") and Yonkers Community Action Program, Inc. ("Yonkers CAP") were not named as defendants in the prior action. As stated above, the underlying claim in that first action related to L.I. Head Start's demand for the return of its reserves that CAAIG held upon its withdrawal from CAAIG; CAAIG's refusal to return the reserves; and the alleged diversion of these reserve monies for the benefit of employees and persons other than the L.I. Head Start employees. In the decision in the first action, the Court determined that CAAIG segregated the contributions of each of the participating employers. CAAIG and the trustees of CAAIG were directed to transfer the sum of $497,736, to a trust fund for the benefit of the class plaintiffs within 60 days from March 3, 2000.

On May 25, 2000, judgment was entered by the Clerk of the Court against the defendants in the CAAIG action in the sum of $802,831.57, which sum 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 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 Trust 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 §§ 1103(c)(1) and 1104(a)(1)(A), 29 U.S.C. §§ 1103(c)(1) and 1104(a)(1)(A). (Id. at 144).

4. The CAAIG Fund provided health, medical, dental and other benefits for the employees of defendant Economic Opportunity Commission of Nassau County, Inc., defendant Economic Opportunity Council of Suffolk, Inc., and any other employer who became a participating employer. (Id. at 144).

5. On November 30, 1985, plaintiff L.I. Head Start became a participating employer in the CAAIG Fund. (Id. at 145).

6. At the time that L.I. Head Start became a participating employer in the CAAIG Fund, defendants EOC Nassau, EOC Suffolk and Yonkers Community Action Program, Inc. ("Yonkers CAP") also were participating employers in the CAAIG Fund. (Id. at 145).

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. (Id. at 145).

8. On September 1, 1992, L.I. Head Start elected to terminate its participation in the CAAIG Trust 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. (Id. at 145).

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 as trustee. Edward Hull ("Hull") also served as a trustee of CAAIG from 1994 to June 11, 1998, when he resigned as a trustee.

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 Nassau, EOC Suffolk and Yonkers CAP, delegated the authority to administer and operate the CAAIG Trust Fund to their respective chief executive officers, defendant Kearse, Fassett and Hull during the periods of their trusteeship.

13. Defendant Yonkers CAP withdrew as a participating employer of CAAIG as of June 30,1998.

14. At the time that Yonkers CAP withdrew as a participating employer of CAAIG, it was indebted to CAAIG in the amount of $107,496 plus interest for unpaid contributions previously billed by and due and owing to CAAIG.

III. THIS PROCEEDING

This is a class action brought against the three not-for-profit organizations that were formerly participants in CAAIG. These organizations are the defendants: the EOC Nassau, the EOC Suffolk and Yonkers CAP. Also joined in this action as a defendant was John L. Kearse a Trustee and Administrator of CAAIG and former Chief Executive Officer of EOC Nassau. Mr. Kearse passed away on February 21, 2007 and is now represented in this action by Stella B. Kearse as Representative of the Estate of John L. Kearse, Deceased. The thrust of the plaintiffs' claims in the present case are that not only did the defendants fail to return reserves attributable to plaintiffs, but they used that money to pay the claims of the employees of the defendant agencies and, also to pay certain other CAAIG administrative expenses and for other improper purposes, constituting fiduciary violations.

Plaintiffs' counsel, Alexander A. Miuccio, Esq., explained the nature of the second proceeding in his own words:

And that's what I thought the monies were, retained — not spent, not disbursed, retained — because I did not have, and neither did the plaintiffs have, any information along those lines.

And if I may, my wherefore clause and my relief requested a constructive trust on the monies which we were under the impression were retained by the CAAIG fund. Again, no knowledge at that point. I can't point to any actual knowledge, which...