Trustees of So. Ca Pipe Trades v. Temecula Mech.

• Decision Date: 03 July 2006
• Docket Number: No. EDCV 06 238 SGL.,EDCV 06 238 SGL.
• Citation: 438 F.Supp.2d 1156
• Parties: TRUSTEES OF THE SOUTHERN CALIFORNIA PIPE TRADES HEALTH AND WELFARE TRUST FUND, et al., Plaintiffs, v. TEMECULA MECHANICAL, INC., and Patrick Leonard, Defendants.
• Court: U.S. District Court — Central District of California

438 F.Supp.2d 1156

TRUSTEES OF THE SOUTHERN CALIFORNIA PIPE TRADES HEALTH AND WELFARE TRUST FUND, et al., Plaintiffs, v. TEMECULA MECHANICAL, INC., and Patrick Leonard, Defendants.

No. EDCV 06 238 SGL.

United States District Court, C.D. California.

July 3, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Marija Kristich Decker, Laquer Urban Clifford & Hodge, Pasadena, CA, for Trustees of the Southern California Pipe Trades Health and Welfare Trust Fund, Trustees of the Southern California Pipe Trades Retirement Trust Fund, Trustees of the Southern California Pipe Trades Defined Contribution Trust Fund, Trustees of the Southern California Pipe Trades Vacation and Holiday Trust Fund, Trustees of the Southern California Pipe Trades Christmas Bonus Fund, Trustees of the Apprentice and Journeyman Training Trust Fund, Trustees of the Plumbers and Pipefitters National Pension Fund, Trustees of the International Training Fund, Plaintiffs.

Christopher S. Milligan, Atkinson Andelson Loya Ruud and Romo, Thomas W. Kovacich, Atkinson Andelson Loya Ruud & Romo, Cerritos, CA, for Temecula Mechanical Inc a California corporation, Patrick Leonard an individual, Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

LARSON, District Judge.

This case brings into sharp focus the liability limits under the Employee Retirement Income Security Act of 1974 ("ERISA") for unpaid employer contributions to employee benefit funds established through a multi-employer plan. Plaintiffs are the trustees ("Trustees") for seven employee benefit funds ("Funds") established under a multi-employer collective bargaining agreement ("CBA") for the benefit of Southern California unionized plumbers. The Trustees have filed a five-count complaint against defendants Temecula Mechanical, Inc. ("TMI"), and its president and sole owner, Patrick Leonard, for monies allegedly owed the Funds in the form of delinquent contributions and union dues. Three of the claims in the complaint are the focus of the present motion to dismiss brought by defendants: Breach of fiduciary duty and engaging in a prohibited transaction by failing to make contribution payments to the Funds in violation of ERISA, see 29 U.S.C. §§ 1104(a), 1106(b)(1), and a state law conversion claim for the unremitted union dues. For the reasons set forth below, the Court GRANTS in part and DENIES in part the motion to dismiss.

I. Rule 12(b)(6) Standard

When a party moves to dismiss a complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), the court must accept as true all the material allegations contained in the complaint and must also construe those allegations in the light most favorable to the plaintiff. See Sanders v. Kennedy, 794 F.2d 478, 481 (9th Cir.1986).

When judging the allegations in the complaint, a court is not confined solely to what is contained in the complaint itself. A court may also "consider . .. material which [was] properly submitted as part of the complaint." Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19 (9th Cir.1989). Moreover, "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered . ." Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994). In that regard, the Court has before it several documents whose contents are made reference to in the complaint even if they are not physically attached to it: The CBA and the Trust Agreements for each of the seven benefit funds. While defendants initially raised foundational objections to the manner in which those Trust Agreements were proffered by the Trustees, those objections were satisfied through the subsequent submission by the Trustees of a declaration by a person who has first-hand knowledge of the documents in question, the administrator for the local trust funds and CEO for a entity that handles unpaid contributions for the national trusts. See Orr v. Bank of America, NT & SA, 285 F.3d 764, 777 (9th Cir.2002); 5 WEINSTEIN'S FEDERAL EVIDENCE § 901.03[2], at 901-22 (2nd ed.2006).

II. Factual Background

The Funds provide the financing for various benefits to union plumbers working in Southern California as a multi-employer benefit plan within the meaning of ERISA. (Compl.¶ 1). The Funds are jointly administered labor-management trust funds established in CBAs negotiated between the Southern California Pipe Trades District Council No. 16 of the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry ("District Council No. 16") and various employer associations in the plumbing and pipefitting industry in Southern California in accordance with the Labor Management Relations Act. (Compl.¶¶ 12, 5). The dispute regarding the unpaid employer contributions owed to the Funds arises out of the obligations set forth in the CBA between TMI and District Council No. 16.

Leonard operated a plumbing and pipefitting contracting outfit doing business as TMI. (Compl.¶ 7). In or about January, 2000, Leonard incorporated TMI and the company voluntarily assumed all of the assets and all of the liabilities of Leonard's business. (Compl.¶ 9). A few months prior to incorporating his business, Leonard signed a copy of the existing Master CBA then in effect between Southern California Contractors and District Council No. 16. (Compl. ¶ 9; Decl. Patrick Leonard, Ex. A at 39). The Master CBA required Leonard to make certain monthly contributions (the amount based on a particular monetary rate keyed to the number of hours worked by union members at the employer's work site during that month) to several trust funds. (Decl. Patrick Leonard, Ex. A). Upon its creation TMI assumed identical duties. (Compl.¶ 9).

The Trustees allege that TMI failed to provide contributions required by the Master CBA for the period January 1, 2002, through June 30, 2003, and that the amount of these unpaid contributions was $291,279.50, which with interest totals over $300,000 presently allegedly owed by defendants to the Funds. (Compl.¶¶ 17, 22). Furthermore, the Trustees allege that, during the same time period, defendants failed to remit union dues to the Funds "in an amount presently unknown." (Compl.¶¶ 58, 60).

TMI ceased to be a party to the Master CBA after July 1, 2003, when it refused to sign an extension of the Master CBA for that year. (Compl.¶ 9).

III. ANALYSIS

A. ERISA claims

ERISA provides that "a fiduciary shall discharge his duties with respect to a plan ... with the care, skill, prudence, and diligence ... that a prudent man ... would use." 29 U.S.C. § 1104(a)(1)(B). Here, the Trustees allege that defendants are plan fiduciaries and that they breached various duties owed by a fiduciary or that they (as fiduciaries) engaged in various prohibited transactions. The relevant specific duties are that a fiduciary shall ensure that "assets of a plan . . . never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan," 29 U.S.C. § 1103(c)(1), and "shall discharge his duties with respect to a plan solely in the interests of the participants." 29 U.S.C. § 1104(a)(1). Similarly, fiduciaries are barred from using "plan assets" in any transaction with "a party in interest," 29 U.S.C. § 1106(a)(1), or deal with plan assets "in his own interest or for his own account," 29 U.S.C. § 1106(b)(1), or "transfer to, or use by or for the benefit of, a party in interest, any assets of the plan." 29 U.S.C. § 1106(b)(1)(D). The statute then provides that "any person who is a fiduciary" and who breaches his fiduciary obligations or otherwise engages in prohibited transactions "shall be personally liable to make good to such plan any losses to the plan ... and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary." 29 U.S.C. § 1109(a).

The Trustees allege that these fiduciary obligations were breached by defendants and that, as fiduciaries, they engaged in prohibited transactions by misusing the unpaid contributions "either [by] diverting the contributions to [Leonard's] sole and exclusive benefit and/or diverting the contributions to [TMI's] sole and exclusive benefit and their indirect benefit." (Compl.¶¶ 10, 41, 50). Defendants raise two points of law in response to these ERISA claims. First, they press that neither defendant is liable on either claim because unpaid employer contributions are not plan assets, a pre-requisite for the existence of a fiduciary duty or a claim based on prohibited transactions under ERISA.¹ Next, defendants argue that, even if the unpaid employer contributions are plan assets, the Trustees cannot hold Leonard personally liable for the same in the absence of some showing that he was either the alter ego of TMI or that TMI's corporate veil should otherwise be pierced. The Court will address each point in turn.

1. Are Unpaid Employer Contributions Plan Assets?

Under ERISA, a person is considered a plan fiduciary if, among other things, "he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets." 29 U.S.C. § 1002(21)(A). "This definition requires (1) showing that the plan assets are at issue and (2) that the individual defendants exercised authority or control relating to the management or disposition of such assets." NYSA—ILA Medical & Clinical Serv. Fund v. Catucci, 60 F.Supp.2d 194, 200 (S.D.N.Y.1999). The question in this case is whether TMI or Leonard are fiduciaries for purposes of ERISA.

The Trustees begin by noting the statute's definition for a plan fiduciary and then emphasize the second part of the definition, arguing that both defendants directed monies that were owed to the Funds and used them for other purposes, thereby making them...