Molina v. Mallah Organization, Inc.

• Decision Date: 09 April 1992
• Docket Number: No. 91 CIV 1575 (WK).,91 CIV 1575 (WK).
• Citation: 804 F. Supp. 504
• Parties: Fernando MOLINA, et al., Plaintiffs, v. The MALLAH ORGANIZATION, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

804 F. Supp. 504

Fernando MOLINA, et al., Plaintiffs, v. The MALLAH ORGANIZATION, INC., et al., Defendants.

No. 91 CIV 1575 (WK).

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

March 5, 1992.

On Motion For Reargument April 9, 1992.

Celia Goldwag Barenholtz, Alan Levine, Kronish, Lieb, Weiner & Hellman, New York City, for plaintiffs.

Bettina B. Plevan, Proskauer Rose Goetz & Mendelsohn, New York City, for defendants Mallah Organization, et al., Carryl Mallah, Sheldon Mallah, Joel Mallah.

S. David Harrison, Lesser & Harrison, New York City, for defendant Rapid Park.

David F. Jasinski, Jasinski and Bisceglie, Newark, N.J., for defendants Rapid Park Industries, Inc., et al., Elizabeth Parking Co., Kevin Wolfe, Raymond Wolfe.

Neal Platt, Shwal & Platt, New York City, for defendants Manhattan Parking, et al.

James LaRossa, LaRossa Mitchell & Ross, New York City, for defendants Martin Meyers, Mack Parking, Carole Storage Corp., and Manhattan Parking Systems Corp.

Richard H. Maidman, New York City, for defendant Samuel Lipman.

Elizer Cohen, New York City, for defendant Manhattan Parking E. 12th Street Corp.

Brian D. Sullivan, Lord Day & Lord, Barret Smith, New York City, for nominal defendants Mac Victor, Simon Rogove, Bernard Ratshin, Daniel Stark, Milton Lewin, Brad Shey, and Norman Goodfarb.

Fred S. Sommer, Arent Fox Kintner Plotkin & Kahn, Washington, D.C., C. Stephen Heard, Jr., McGarrahan & Heard, New York City, for intervenor Metropolitan Garage Owners Ass'n, Inc.

OPINION AND ORDER

WHITMAN KNAPP, District Judge.

Plaintiffs bring suit directly and derivatively alleging violations of ERISA, 29 U.S.C. §§ 1132(g)(2), 1132(a)(3), 1140, and 1145, and the Labor Management Relations Act (LMRA), 29 U.S.C. § 185(a), alleging that they were injured by defendants' failure to make contributions for them to the Local 272 Welfare Fund and to the Local 272 Pension Fund ("the Funds") and by the denial of their right to participate in those Funds. The Funds are multiemployer plans within ERISA, 29 U.S.C. §§ 1002(37)(A) and 1145, and the LMRA, 29 U.S.C. § 186(c)(5).

Plaintiffs are parking garage employees who now work or have previously worked for facilities owned and operated by the defendant parking garages. There are three categories of defendants: the employers, consisting of parking garages owned and operated by the Mallah, Rapid Park, and Manhattan Parking garage chains, and some of their shareholders, officers, and/or agents; the "Nominal defendants," five present and two former employer trustees of the Funds; and individual defendants Samuel Lipman and Manhattan Parking East 12th Street Corp. Metropolitan Garage Owners Association ("MGOA"), which is the collective bargaining agent for garages that belong to it, has intervened in the action. The Mallah chain, especially, and the nominal defendants have taken the lead for all defendants in litigating this matter. Thus while we refer almost exclusively to "Mallah" and the nominal defendants when discussing the motions before us, we incorporate the other defendants to the extent that they have joined the Mallah or nominal defendants motions and memoranda.

Before us are a number of interrelated motions. First, Mallah moves under Fed. Rule Civ.Pro. 12(b): (i) to dismiss the complaint for failure to join plaintiffs' union, Garage Employees Local Union 272 ("the Union"), as an indispensable party, failure to exhaust grievance procedures under the collective bargaining agreement between the Union and defendant-intervenor MGOA, and failure to exhaust internal plan remedies; (ii) to dismiss Counts I, II, and III for failure to allege any facts establishing that the Funds' trustees breached their fiduciary duty, and failure to allege a proper demand upon the trustees; (iii) to dismiss Count IV for failure to state a claim; (iv) to dismiss all claims against the individual Mallah defendants for failure to state a claim upon which relief can be granted; and/or (v) to stay proceedings against the employer defendants.

The nominal defendants move to dismiss the complaint for failure to state a claim of breach of fiduciary duty against any of them and for failure to make an appropriate demand. They further request that, if appropriate, we treat their motion as one for summary judgment.

Defendants Rapid Park and Manhattan joined in both the Mallah and MGOA motions; defendants Samuel Lipman and Manhattan Parking East 12th Street made individual motions exactly tracking the Mallah motion and joined in the Mallah memorandum of law; and intervenor MGOA neither made nor joined in any motion. We heard oral argument on these motions on September 27, 1991, at which time we denied the Mallah motion insofar as it sought dismissal for failure to add the Union as an indispensable party.

The remaining outstanding motions, on which we have not heard oral argument, but which are all fully briefed, consist of: plaintiff's motion for class certification¹; the Mallah motion to disqualify plaintiffs' counsel, the firm of Kronish, Lieb, Weiner & Hellman; and intervenor MGOA's motion to join Local 272 as a party to the action. The non-moving defendants join in the motions made by MGOA and Mallah, as well as Mallah's opposition to plaintiffs' motion for class certification.

For the reasons that follow, we grant in part and deny in part Mallah's motion to dismiss. We deny the nominal defendants' motion to dismiss and decline to address it as one for summary judgment. Mallah's motion to disqualify Kronish, Lieb from simultaneously representing plaintiffs, the Union, and the Union trustees as counsel is granted on the specific terms set forth below. Finally, we reserve decision on MGOA's motion to join the Union and plaintiff's motion for class certification pending a resolution among plaintiffs, the Union, and the Kronish firm with respect to who will represent whom.

BACKGROUND²

Three successive three-year collective agreements dated February 6, 1983, 1986, and 1989 between MGOA and the Union — who are the sole collective bargaining representatives for their respective members —govern the terms of employment between garage employees and the individual employing garages who are members of MGOA. These collective agreements provide, inter alia, that: the agreements are binding on all members of MGOA; the corporate veil may be pierced; the agreements apply to all "covered employees," which category includes "working managers or working foremen, washers, floormen, transporters and cashiers" and any person whose "duties include parking cars"; "all covered employees are to become members of Local 272 after 30 days of work"; and contributions to the Funds are to be made according to an agreed-upon schedule for all covered employees who have worked a specified period. Compl. at ¶¶ 160, 162-66.

Despite these contractual obligations, defendants, as early as 1981, hit upon a scheme that has ended up defrauding the Funds of more than $6.7 million. The structure of this scheme was quite simple: defendants hired plaintiffs and at least 470 fellow members of their proposed class — many of whom were newly arrived illegal aliens fearful for their immigration status —as garage employees in covered employment, but neither caused them to join the Union within 30 days, nor made Funds contributions for them. Compl. at ¶¶ 18(a), 6. Defendants used a variety of means to implement the scheme, including hiding the existence of the Union, actively discouraging union membership when employees became aware of it, implicitly and explicitly threatening discharge should employees attempt to join the Union, concealing from the Union and from the Funds' auditors the existence of those employees whom defendants sought to exclude from union membership by transferring them from one garage to another, paying these hidden employees through a "web" of corporate entities, and actually (in at least one case) paying an employee's medical expenses to discourage his joining the Union. They also threatened to retaliate against any employees who assisted Union delegates in this action. Finally, defendants deliberately hid the identity of these employees from the Funds by failing to report them on the monthly Employer Report Form used by the Funds to track contribution levels and employees' eligibility for benefits from the Welfare Fund and vesting status in the Pension Fund. Compl. at ¶¶ 173, 178-80. The Employer Report Form states that "all employees in jobs covered by the Collective Bargaining Agreement with Local 272 must be paid for whether or not they are Union Members." Compl. at ¶ 169.

The agreement that was entered into on February 6, 1989 and expired on February 5, 1992 ("1989 Agreement") created for the first time two classes of "A" and "B" level employees, for each of which separate wage scales and contribution requirements applied.³ The "A" level employees are those current workers for whom Funds contributions were made in the 36 months preceding the 1989 contract, while the "B" level employees are those current workers for whom no Funds contributions had been made in the preceding 36 months and all workers hired after the 1989 agreement became effective for whom no Funds contributions had previously been made. No Funds contributions need be made for "B" workers during their first year of employ, and their wages and benefits are lower than those of "A" workers. Compl. at ¶¶ 7-8, 182-186.

This agreement also signalled a shift in defendants' scheme. In expressly creating and defining two classes of workers, the agreement also recognized that the new "B" class consisted of employees who had had a right to participate in the Funds, which right defendants had denied, and for whom contributions to the Funds should have been made, but had not been. MGOA issued a bulletin on or about the effective date of the 1989 Agreement instructing all "B" workers — those "present employees" working in covered employment "for whom no...