Leddy v. Standard Drywall, Inc.
| Decision Date | 16 May 1989 |
| Docket Number | D,No. 811,811 |
| Citation | 875 F.2d 383 |
| Parties | , 13 Fed.R.Serv.3d 1076, 10 Employee Benefits Ca 2665 Patrick J. LEDDY, John J. O'Connor, Denis R. Sheil, James F. Viggiano, John J. Brennan, Alfred Finkel, Theodore King, Frederick Devine, Frank McHale, Joseph Fater, Irving Mazer, Kurt Tolksdorf, the Trustees of the New York City District Council of Carpenters Welfare Fund, New York City District Council of Carpenters Pension Fund, New York City District Council of Carpenters Vacation Fund, New York City District Council of Carpenters Annuity Fund, New York City District Council of Carpenters Apprenticeship, Journeymen Retraining Educational and Industry Fund, New York City District Council of Carpenters Annuity Fund, and New York City District Council of Carpenters Supplemental Funds (hereinafter referred to collectively as the Trustees of the New York City District Council of Carpenters Benefits Funds), Plaintiffs-Appellees, v. STANDARD DRYWALL, INC., Michael Gedell, Defendants-Appellants, Arnold Koslow, d/b/a "Standard" and Frances Katz, Murray Koslow, Joseph Koslow, Harvey Shulman, Barry Shulman, Kevin Ebel, Edward Piccirillo, and Arthur Giangrande, Defendants. ocket 87-7185. |
| Court | U.S. Court of Appeals — Second Circuit |
Douglas P. Null, Westbury, N.Y., for defendants-appellants.
David W. Silverman, New York City (Catherine T. O'Toole Lauritano, Granik Silverman Sandberg Campbell Nowicki Resnik, New York City, on the brief), for plaintiffs-appellees.
Before OAKES, Chief Judge, NEWMAN, Circuit Judge, and LEISURE, District Judge. *
Standard Drywall, Inc. ("Standard") and its president, Michael Gedell, appeal from a judgment entered after a bench trial in the District Court for the Eastern District of New York (Leonard D. Wexler, Judge), finding that Standard and Gedell violated Section 515 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1145 (1982), by fraudulently withholding employee benefit fund contributions that Standard was required to make under terms of its collective bargaining agreement with the New York City District Council of Carpenters ("Carpenters" or "Union").
Appellants contend that the doctrines of collateral estoppel and/or res judicata bar a portion of the judgment that was the subject of a prior arbitration and that the District Court improperly reversed a pretrial ruling that had dismissed that portion of the plaintiffs' claim. Appellant Gedell also argues that he should not have been held personally liable for Standard's failure to make benefit fund contributions. For the reasons stated below, we affirm.
Standard is a Brooklyn construction company incorporated in the State of New York. Appellant Gedell is its president and a major shareholder. Between 1978 and 1984, Standard was party to a collective bargaining agreement with the Carpenters requiring Standard to make weekly contributions to the Union's pension, welfare, and fringe benefit funds ("the Funds"), based on the total number of hours worked by carpenters employed by Standard.
In 1981, the trustees of the Funds discovered that Standard was not making the required contributions and demanded binding arbitration, as permitted by the collective bargaining agreement. In the arbitration, the Funds contended that Standard had fraudulently used "alter-ego" companies that Standard controlled to conceal the amount of hours worked by Standard employees and thus to evade the benefit contributions required under the collective bargaining agreement.
The arbitrator found delinquencies in Standard's contributions to the Funds totaling $84,488.10 for the period through November 23, 1981, but found that the Funds had not proved their allegations concerning the use of alter ego companies. The arbitrator ordered Standard to pay a total of $107,933.25 for the delinquencies, liquidated damages, interest, and attorneys' and arbitrator's fees. Judgment was never entered on the arbitrator's award, although Standard contends that the award was paid.
On May 4, 1983, the Funds filed suit against Standard and Gedell in District Court for the Eastern District of New York alleging that the defendants conspired to defraud the Funds and violated ERISA by withholding required benefit fund contributions. Before trial, Standard and Gedell moved for partial summary judgment on the ground that the claims for the period through November 23, 1981 were barred from relitigation because they had been the subject of the prior arbitration. In a written memorandum and order, the District Judge granted the motion for partial summary judgment based on res judicata but, eschewing even the possibility of invoking Fed.R.Civ.P. 54(b), instructed the Clerk not to enter the order as a judgment.
While the partial summary judgment motion was pending, a federal grand jury in the Eastern District of New York indicted Standard, Gedell, and other Standard officials, charging them with various criminal violations in connection with the scheme to defraud the Carpenters' Funds by using dummy corporations to conceal the amount of benefit contributions owed under the collective bargaining agreement. Standard and Gedell subsequently pleaded guilty to several counts of the indictment, including fraud on the part of Standard and conspiracy to defraud on the part of Gedell and other officials. The Funds then amended their complaint to include allegations relating to the charges contained in the indictment, and the guilty pleas were admitted in evidence at trial.
At the beginning of the bench trial, the defendants objected to the introduction of testimony by auditors concerning delinquent contributions for the period before November 23, 1981, contending that the District Judge had already ruled that claims relating to that period were barred by res judicata. Judge Wexler overruled the objection, saying he would "hear it all and then sift [it] out." He assured the defendants that he was "keying in" on the dates.
After the trial, the District Judge found Standard and Gedell liable for withholding benefit contributions and ordered the defendants to pay a total of $71,924.45 for the unpaid contributions, interest, and liquidated damages pursuant to 29 U.S.C. Sec. 1132(g)(2), and legal fees and costs. The judgment included an award for the period prior to November 23, 1981. The District Judge's opinion made no mention of defendants' res judicata/collateral estoppel defense or the pretrial ruling that the defense was valid. The District Judge also rejected, without comment, a motion by the defendants to amend the judgment to take into account the pretrial ruling.
Appellants contend that the District Court erred in rejecting their defense of collateral estoppel or res judicata for the period before November 23, 1981. Appellants argue that the Funds' claims for that period, including the allegation that Standard fraudulently used alter ego companies to evade its contractual obligations, were fully litigated in the arbitration.
Arbitration proceedings can, but do not necessarily, have preclusive effect on subsequent federal court proceedings. See Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 223, 105 S.Ct. 1238, 1243, 84 L.Ed.2d 158 (1985); Benjamin v. Traffic Executive Association Eastern Railroads, 869 F.2d 107 (2d Cir.1989). Here, however, we need not reach the issue of whether an arbitration award should be given preclusive effect by a federal court adjudicating an ERISA claim. Appellants concede that the arbitrator's award on the contract claim, which was governed by New York law, was never confirmed and entered as a judgment pursuant to N.Y.Civ.Prac.L. & R. 7510 & 7514 (McKinney 1980). Under New York law, it is the judgment entered on an arbitration award that is given preclusive effect in subsequent litigation. See Springs Cotton Mills v. Buster Boy Suit Co., 275 A.D. 196, 88 N.Y.S.2d 295, 298 (1st Dep't), aff'd, 300 N.Y. 586, 89 N.E.2d 877 (1949). An arbitration award that is not filed and confirmed in an appropriate court is without effect. Flora Fashions Inc. v. Commerce Realty Corp., 80 N.Y.S.2d 384, 386 (Sup.Ct.1948).
Even if the arbitrator's award had been entered as a judgment, its preclusive effect would be doubtful. The evidence suggests that the arbitrator did not have an opportunity fully and fairly to review the Funds' claim because Standard and Gedell continued during the arbitration to conceal their fraud. See Commissioner v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 719, 92 L.Ed. 898 (1948) () (emphasis added); Restatement (2d) Judgments Sec. 26 Comment j (1980). We need not decide the significance of appellants' conduct during the arbitration proceeding, however, since the failure to enter the arbitration award as a judgment is sufficient to bar any preclusive effect. 1
Appellants further contend that even if the litigation of the claims relating to the period prior to November 23, 1981 was not barred by collateral estoppel or res judicata, those claims were effectively removed from the case by the District Court's pretrial ruling. We disagree.
Judge Wexler specifically ordered the Clerk not to enter his pretrial ruling as a judgment. It is by no means clear that the amount sought for the period before November 23, 1981, was the subject of a distinct "claim" that would have supported a Rule 54(b) judgment. In any event, Rule 54(b) explicitly provides that in the absence of entry of a final judgment, "any order or other form of decision, however designated, which adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties ... is...
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