Liss v. Smith
| Decision Date | 13 January 1998 |
| Docket Number | No. 95 CIV. 1256(HB).,95 CIV. 1256(HB). |
| Citation | 991 F.Supp. 278 |
| Parties | Mark LISS, as Chairman of the Trustees of the 966 Health Plan and the 966 Pension Plan, and Miguel Millet, Plaintiffs, v. Steven SMITH, Joseph Pasqualone, Frank Flores, Lawrence Finley, Edwin Gonzalez, Stephen Zaccherio, Vincent Sombrotto, and Bryan McCarthy, personally and in their capacities as plan fiduciaries, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Richard A. Levy, Daniel Engelstein, Judy Paddow, Levy, Ratner & Behroozi, New York, NY, for Plaintiffs.
Peter Contini, Joy Schneider, L'Abbate, Balkan, Colavita, & Contini, LLP, Garden City, NY, for Defendant Bryan McCarthy.
Patrick M. Campbell, Granik, Silverman, Campbell & Hekker, New City, NY, for Defendant Trustees.
Stephen F. O'Beirne, Richards & O'Neil, LLP, New York, NY, for Defendant Vincent Sombrotto.
Plaintiffs move for summary judgment against all non-settling defendants on the first through seventh, ninth and eleventh causes of action in the Amended Complaint. Defendants have cross-moved for summary judgment on all eleven causes of action.1 For the reasons discussed below, plaintiffs' motion is GRANTED in part and DENIED in part. Defendants' motions are DENIED.
This case involves the administration of Teamster Local 966's Health and Pension Funds. Plaintiffs are Chairman of the Boards of Trustees of the Local 966 Health and Pension Funds (the "Funds" or the "Plans") and a plan participant. They bring this action under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq. ("ERISA") against current and former Employer Trustees of both Plans;2 two former Union Trustees;3 the Local's past President, Vincent Sombrotto; and the Funds' former counsel and current counsel to the Employer Trustees, Bryan McCarthy.4 The Amended Complaint asserts breaches of fiduciary duty by the defendants in violation of ERISA Section 404, 29 U.S.C. § 1104, as well as prohibited transactions in violation of ERISA Section 406, 29 U.S.C. § 1106. It seeks to assert liability for these breaches against defendants Sombrotto and McCarthy as well, alleging that while neither is a trustee, they are nonetheless liable as fiduciaries pursuant to 29 U.S.C. § 1002(21)(A). Plaintiffs also assert a pendent state-law legal malpractice claim against defendant McCarthy. The Amended Complaint seeks money damages as well as equitable relief, which, if granted, would remove the current Employer Trustees from their positions and remove Bryan McCarthy as counsel to the Employer Trustees pursuant to ERISA Section 502(a). 29 U.S.C. § 1132(a).
In essence, plaintiffs' allegations paint a picture of gross mismanagement, if not worse. Plaintiffs assert — and to a considerable extent have established — that the defendants abdicated their responsibility to act prudently and in the best interests of the Funds' participants.5 Moreover, this failure appears to have benefitted the friends, colleagues and family of defendant Bryan McCarthy. To all those who thought that Senator McClellan, Robert Kennedy and their colleagues fashioned legislation that would herald the end to such activity, the papers on this motion are a stark reminder that the success of their efforts requires eternal vigilance.
The Funds are affiliated with Local 966 of the International Brotherhood of Teamster ("IBT"). As a result of a lawsuit alleging corruption in the IBT and a consent agreement entered into between the IBT and the United States government, an Independent Review Board ("IRB") was created to help root out corruption in the Union. After conducting an investigation into Local 966, the IRB alleged that (i) "the financial condition of Local 966 [was] deteriorating and that membership [was] declining," (ii) "Local Union 966 officers [had] engaged in dual unionism by organizing several non-IBT locals," and (iii) "Local 966 officers [had] engaged in financial malpractice including embezzlement of Local Union Funds." Notice of Trusteeship, Pl.Ex. B; see also Memo from IRB to Ron Carey, April 12, 1994, Pl.Ex. A. In light of these allegations, the IRB recommended that Local 966 be placed in Trusteeship. Memo from IRB to Ron Carey, April 12, 1994, Pl.Ex. A. IBT General President Ron Carey placed Local 966 into temporary trusteeship effective April 27, 1994 and appointed Gene Moriarty to serve as Trustee. See Notice of Trusteeship, Pl.Ex. B. At that time, defendant Sombrotto was removed from office as the Local's president. The new Local Trustee, Gene Moriarty, appointed himself and another individual as the Funds' Union Trustees to replace defendants Zaccherio and Gonzalez. Moriarty, who brought this action on behalf of the Funds, has since been succeeded by plaintiff Mark Liss.
The Amended Complaint asserts eleven causes of action. First, plaintiffs allege that defendants failed to adequately go about the collection of delinquent contributions or the interest due on such delinquent contributions and specifically implicates defendant Bryan McCarthy in this practice. In essence, plaintiffs allege that the defendant trustees — with McCarthy as their counsel, colleague and collaborator — had a practice of regularly waiving interest on delinquent contributions from employers as long as the payments were ultimately made before suit was filed. This practice amounted to interest regularly being waived on contributions three or more months late, without any investigation by the trustees or McCarthy as to whether such interest was in fact collectible and without any apparent consideration of the availability of attorney's fees and liquidated damages as additional remedies in suits to collect delinquent contributions, see 29 U.S.C. §§ 1132(g), 1145. Moreover, and more troubling, some of these delinquent employers were represented by, and had business dealings with, Bryan McCarthy's brothers through the brothers' various consulting and other businesses. Plaintiffs allege this practice violates ERISA Sections 406(a)(1) & 406(b)(2), 29 U.S.C. §§ 1106(a)(1) & 1106(b)(2), which prohibit the extension of credit to parties-in-interest. Plaintiffs also assert that such conduct is violative of defendants' fiduciary duty. See ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1).
Second, plaintiffs assert that defendants engaged in prohibited transactions and breached their fiduciary duty, again in violation of ERISA Sections 404 and 406, by allowing the Health Fund to enter into a certain arrangement with the Travelers Insurance Company ("Travelers"). The Travelers allegations implicate defendants McCarthy and Sombrotto in even more conflicts of interest involving additional union locals.
Defendant Sombrotto (who was Local 966's president, but not a trustee of the Funds) entered into an agreement with Travelers whereby Travelers agreed to provide health insurance for 2,000 members of the 966 Health Fund at a fixed premium per person or family.6 The agreement depended on minimum enrollment figures and set target dates by which those enrollment figures were to be met. Few if any Local 966 members ever enrolled in the Travelers Plan, and indeed it is hard to tell if they were ever even...
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