Sheet Metal Workers Local 137 v. Vic Const.

• Citation: 825 F. Supp. 463
• Decision Date: 23 June 1993
• Docket Number: No. 91 CV 2463.,91 CV 2463.
• Parties: BOARD OF TRUSTEES OF the SHEET METAL WORKERS LOCAL UNION NO. 137 INSURANCE ANNUITY AND APPRENTICESHIP TRAINING FUNDS and the Executive Board of Sheet Metal Workers Local Union No. 137 v. VIC CONSTRUCTION CORPORATION and Charles Nalbone.
• Court: U.S. District Court — Eastern District of New York

825 F. Supp. 463

BOARD OF TRUSTEES OF the SHEET METAL WORKERS LOCAL UNION NO. 137 INSURANCE ANNUITY AND APPRENTICESHIP TRAINING FUNDS and the Executive Board of Sheet Metal Workers Local Union No. 137 v. VIC CONSTRUCTION CORPORATION and Charles Nalbone.

No. 91 CV 2463.

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

June 23, 1993.

Giblin & Lynch (Thomas J. Giblin, of counsel), Union, NJ, for plaintiffs.

Goldwater & Flynn (Kevin Arnold Barry and James L. Goldwater, of counsel), New York City, for defendants.

MEMORANDUM AND ORDER

NICKERSON, District Judge:

Plaintiffs, the Board of Trustees of the Sheet Metal Workers Local Union No. 137 Insurance, Annuity and Apprenticeship Training Funds (the Funds) and the Executive Board of Sheet Metal Workers Local Union No. 137 (the Union), brought this action alleging that (i) defendant Vic Construction Corporation (Vic Construction) failed to make payments to the Funds in violation of a collective bargaining agreement and section 515 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 et seq. and 1145, and (ii) defendant Charles Nalbone operated Vic Construction as his alter ego and is jointly and severally liable.

Plaintiffs move for an order enforcing an oral settlement agreement.

I

The undisputed facts are these.

On July 2, 1993 the court granted summary judgment to plaintiffs against Vic Construction alone in the amount of $17,813.42, plus reasonable attorneys' fee and costs.

To settle this dispute, Nalbone, the sole shareholder and acting with authority to represent Vic Construction, stipulated at a deposition on January 6, 1993 that plaintiffs are owed $26,935.26, that "the indebtedness is due by Vic Construction Corporation and Charles Nalbone individually, and that Charles Nalbone individually guarantees the payment." The deposition was recorded and transcribed by a certified shorthand reporter.

A stipulation memorializing the agreement of the parties was drafted and provided to counsel for defendants. Defendants refused to sign the agreement, citing the Second Circuit's subsequent decision in Sasso v. Cervoni, 985 F.2d 49 (2d Cir.1993). That court, reversing a court in this district, held that an individual is not liable for corporate ERISA obligations solely by virtue of his role as the only officer, director, and shareholder.

Plaintiffs moved for an order enforcing the oral settlement agreement, as expressed in the deposition on January 6, 1993.

II

The parties assume that the oral settlement agreement, if intended to be final, would be binding. The question is not immediately clear. It turns on whether New York or federal common law should govern the validity of an oral settlement agreement resolving ERISA disputes.

A

If New York law were to govern, the court would deny the motion. Rule 2104 of the New York Civil Practice Law and Rules provides that:

An agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney or reduced to the form of an order and entered.

New York courts have at times mitigated the potentially harsh effect of this rule by finding a "writing" subscribed by a party or attorney contained in correspondence confirming a prior oral agreement. See, e.g., Morrison v. Bethlehem Steel Corp., 75 A.D.2d 1001, 429 N.Y.S.2d 123 (4th Dep't 1980).

New York courts have also estopped parties from invoking the rule when satisfied that the stipulation was made and relied upon, to the detriment of an adverse party. See Smith v. Lefrak Org., Inc., 142 A.D.2d 725, 531 N.Y.S.2d 305 (2d Dep't 1988) (plaintiff discontinued action, consented to a warrant of eviction, and purchased limousine for his new business after defendant orally agreed to settle action for $95,000); A.J. Tenwood Assocs., Inc. v. United States Fire Ins. Co., 104 Misc.2d 467, 470, 428 N.Y.S.2d 606, 607-08 (Sup.Ct. New York Co.1980) (party accepted oral settlement on eve of trial and did not proceed with immediately available trial). See also In re Dolgin Eldert Corp., 31 N.Y.2d 1, 11, 334 N.Y.S.2d 833, 841, 286 N.E.2d 228, 234 (1972) (observing, in dicta, that the court might enforce oral settlement agreement with undisputed terms where all elements of estoppel, including reliance, are present).

The settlement agreement here fails to satisfy Rule 2104. It was neither written nor agreed to in open court. The parties have submitted no correspondence or other papers subscribed by defendants or their attorneys that would constitute a "writing" within the meaning of the rule.

Even assuming that, in reliance on the oral agreement, plaintiffs discontinued legal action during the one month before defendants refused to sign the written agreement, this court sees insufficient prejudice to estop the application of Rule 2104. Plaintiffs have not stated that were prejudiced by their reliance on the oral agreement.

B

The court considers, next, whether federal statutory or common law should govern this dispute. ERISA creates an extensive federal statutory scheme governing the regulation of and litigation concerning employee benefit plans. That scheme does not provide, by its terms, a rule of decision governing the validity of oral settlement agreements.

Where, as here, a case falls within the ambit of an extensive federal statutory and regulatory scheme that does not address the precise and narrow issue of litigation, a federal court is competent to fill the void, when appropriate, by fashioning federal common law. See D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 471-72, 62 S.Ct. 676, 686, 86 L.Ed. 956 (1942) (Jackson, J., concurring) ("Federal law is no juridical chameleon, changing complexion to match that of each state wherein lawsuits happen to be commenced.... The law which we apply to this case consists of principles ... selected by us because they are appropriate to effectuate the policy of the governing Act.").

The court must examine "whether there exists a valid substantive federal interest or policy that requires the application of federal law as an exercise of interstitial lawmaking to protect or effectuate the federal scheme." First S. Fed. Sav. & Loan Assoc. v. First S. Sav. & Loan Assoc., 614 F.2d 71, 73-74 (5th Cir.1980). Absent such a federal interest or policy, the federal court should ordinarily "borrow" a state rule of decision. Id.

Faced with the question of whether to enforce an oral agreement settling a Title VII case where the state law required a subscribed writing, the Fifth Circuit determined in Fulgence v. J. Ray McDermott & Co., 662 F.2d 1207, 1209 (5th Cir.1981) that "no significant state interest would be served by absorbing state law as the rule of decision." To the contrary, a state law requirement of a writing hampered the significant federal interest in encouraging voluntary settlement of Title VII claims. Id.

In Gamewell Mfg., Inc. v. HVAC Supply, Inc., 715 F.2d 112, 114-15 (4th Cir.1983), the Fourth Circuit collected and analyzed cases declining to borrow state law governing the enforceability of releases and settlements of federal causes of action. It concluded that the cases generally involved federal statutory schemes aimed at rectifying historical inequalities in bargaining power between parties (citing Parker v. De Kalb Chrysler Plymouth, 673 F.2d 1178, 1180 (11th Cir.1982) (Truth in Lending Act); Fulgence, 662 F.2d at 1208-09 (Title VII); Jones v. Taber, 648 F.2d 1201, 1203 (9th Cir.1981) (42 U.S.C. § 1983); Ott v. Midland-Ross Corp., 523 F.2d 1367, 1368-69 (6th Cir.1975) (Age Discrimination in Employment Act)). These cases suggest a "federal solicitude" toward claimants that, prior to the federal legislation, had been inadequately protected by state substantive law. Jones, 648 F.2d at 1203.

Courts have also adopted a federal rule where the underlying statutory scheme is advanced by the adoption of uniform rules for settling cases. See, e.g., Dice v. Akron, Canton & Youngstown R.R. Co., 342 U.S. 359, 361, 72 S.Ct. 312, 314, 96 L.Ed. 398 (1952) (federal law determines validity of releases under Federal Employers' Liability Act); Strange v. Gulf & S. Am. S.S. Co., 495 F.2d 1235, 1236 (5th Cir.1974) (federal law determines validity of oral settlement agreements within federal courts' admiralty and maritime jurisdiction).

C

There is a federal interest in remedying unequal bargaining power and in encouraging private settlements and uniformity. On these bases this court concludes that federal common law should govern the validity of settlement agreements resolving ERISA disputes.

Congress enacted ERISA to protect "the continued well-being and security of millions of employees and their dependents" by ensuring that promised benefits are paid. 29 U.S.C. § 1001. It established a mechanism, utilized here, whereby an ERISA plan or union could ask a federal court to enforce an employer's promises to make payments to the plan. 29 U.S.C. § 1145.

Mindful of the burden imposed on federal courts, Congress mandated the establishment of private dispute procedures through which plan beneficiaries and fiduciaries may voluntarily resolve their disputes. 29 U.S.C. § 1133.

And Congress provided for exclusive jurisdiction over disputes, as here, between ERISA plan trustees (or unions) and employers, 29 U.S.C. § 1132(e)(1), thereby encouraging the uniform development of federal common law principles.

In the light of these interests and policies, this court sees no purpose in "borrowing" a state law requirement that settlement agreements be in writing. The application of a wooden state rule that ignores objective evidence that the parties intended to enter a final and binding agreement disposing of an action hardly advances the policies of preserving plan assets, encouraging the private resolution of disputes, and uniformity. It allows an employer, as...