Upstate N.Y. Eng'rs Health Fund v. John F. & John P. Wenzel Contractors, Inc.

• Decision Date: 14 March 2019
• Docket Number: 5:17-CV-0570 (LEK/DEP)
• Parties: UPSTATE NEW YORK ENGINEERS HEALTH FUND, et al., Plaintiffs, v. JOHN F. AND JOHN P. WENZEL CONTRACTORS, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of New York

UPSTATE NEW YORK ENGINEERS HEALTH FUND, et al., Plaintiffs, v. JOHN F. AND JOHN P. WENZEL CONTRACTORS, INC., et al., Defendants.

5:17-CV-0570 (LEK/DEP)

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF NEW YORK

March 14, 2019

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

Plaintiffs—the Upstate New York Engineers Health Fund, Upstate New York Engineers Pension Fund, Upstate New York Engineers S.U.B. Fund, Upstate New York Engineers Training Fund, Central Pension Fund of the International Union of Operating Engineers and Participating Employers, and Local 106 Training and Apprenticeship Fund (collectively, the "Funds"), as well as the Upstate New York Operating Engineers Local 158 (the "Union")—brought this action (by and through their various managers and administrators) against John F. and John P. Wenzel Contractors, Inc. ("Wenzel") and two of its officers, Mark C. Squires and David W. Squires, alleging violations of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. Dkt. No. 48 ("TAC").¹ Now before the Court is Plaintiffs' motion to,among other things, strike the third and fifth affirmative defenses asserted by Defendants. Dkt. No. 41 ("Motion"); see also Dkt Nos. 41-12 ("Memorandum"), 44 ("Opposition Memorandum"), 50 ("Reply"), 50-1 ("Reply Memorandum").² For the reasons set forth below, Plaintiffs' Motion is granted in part and denied in part.

II. BACKGROUND

A. Factual Background

According to the TAC, at all times relevant to the parties' dispute, Wenzel was an "employer[] of employees covered by an employee benefit plan and multiemployer plan maintained pursuant to [one of multiple] collective bargaining agreement[s]" entered into by Wenzel and the Union. TAC ¶¶ 18, 23. Those agreements, referred to collectively in the TAC as the "CBAs,"³ subjected Wenzel to the "terms and conditions, rules[,] and regulations" set out in anumber of separate agreements to which Wenzel was not directly a party. Id. ¶ 24. The TAC calls these separate agreements the "Trusts"⁴ and "Collections Policy."⁵ Pursuant to those contractual relationships, Wenzel was obligated "in accordance with ERISA [s]ection 515," id. ¶ 18, to "deduct from each of its employees' wages stipulated sums for each hour worked[,] and [to] pay said amounts to the Union," id. ¶ 27.

Two audits conducted by Plaintiffs—on October 16-18, 2017, id. ¶ 30, and May 22, 2018, id. ¶ 32—revealed that Wenzel had failed to make a series of remittances allegedly owed to the Funds under those agreements, resulting in a total deficiency of $253,757.26 "in contributions and deductions," id. ¶ 34. Since being informed of that deficiency, Wenzel has partially, but not fully, satisfied its debt. Id. ¶ 31. Plaintiffs therefore commenced this action to retrieve the outstanding balance of $173,588.87 and obtain other relief. Id. ¶ 33.

B. Procedural Background

Plaintiffs filed their initial Complaint on May 23, 2017, followed by their FAC on October 24, 2017. Both those pleadings named as defendants only Wenzel and Mark Squires, who filed a joint answer on October 26, 2017. Dkt. No. 19 ("FAC Answer"). OnNovember 14, 2017, Judge Peebles held an initial pretrial conference and discovery began in earnest. Dkt. No. 26. Approximately four months later Plaintiffs filed their SAC, adding David Squires as a defendant. Defendants jointly filed an answer to that pleading on March 27, 2018. Dkt. No. 36 ("SAC Answer").

On September 6, 2018, Plaintiffs amended their pleading a third time, TAC, and Defendants once again answered, Dkt. No. 52 ("TAC Answer"). The TAC incorporates minor changes to Plaintiffs' damages calculation, TAC ¶¶ 29-34, and eliminates their request for an injunction against Defendants based on "further violations" of ERISA, the CBAs, the Trusts, and the Collections Policy, see SAC ¶¶ 80-87. However, the remainder of the TAC mirrors Plaintiffs' previous pleadings, and includes: (1) a compensatory damages claim pursuant to § 1145 (ERISA section 515) arising out of Wenzel's failure to remit contributions, TAC ¶¶ 21-34; (2) a claim for interest payments and liquidated damages due to Wenzel's untimely remittances, id. ¶¶ 35-38; (3) a claim for specific performance in the form of the "produc[tion of certain] books and records" by Wenzel to Plaintiffs, id. ¶¶ 39-48; (4) a contractual damages claim against Wenzel as provided for in the Funds' Collections Policy, id. ¶¶ 49-53; (5) a § 1104(a)(1)(A) (ERISA section 404(a)) claim against Mark Squires and David Squires for breach of their fiduciary duties, id. ¶¶ 54-72; and (6) a § 1106(b) (ERISA section 406(b)) claim against Mark Squires and David Squires for the impermissible use of assets owed to the Funds, id. ¶¶ 73-85.

The affirmative defenses asserted by Defendants also remained largely consistent over time. Compare FAC Answer at 2-3, with SAC Answer at 2-3, and TAC Answer at 2-3. As relevant to the present dispute, Defendants' third affirmative defense states as follows:

Plaintiffs, or the Union representatives and agents, or both, knew or should have known that Defendants were allegedly not paying employee contributions in question to Plaintiffs, but were paying directly to employees and remained silent under such circumstances where they were obligated to notify Defendants of the discrepancy and failure to do so constitutes a breach of the contract and a breach of the covenant of good faith and fair dealing as between Defendants and Plaintiffs, therefore relieving Defendants of the obligations at least as to a portion of the claims stated in Plaintiff's complaint.

TAC Answer ¶ 9. And their fifth affirmative defense, which actually asserts a number of different equitable defenses, reads:

Inasmuch as the complaint still seeks equitable relief, Plaintiffs are not entitled to any recovery based on the equitable defenses of Estoppel, Waiver, Unclean Hands, Bad Faith Dealings, Account Stated[,] and Laches.

Id. ¶ 11.

Approximately one month before filing their TAC, in an apparent effort to clear up some of the parties' still-outstanding discovery disputes, Plaintiffs filed the present Motion seeking, among other things, to strike Defendants' third and fifth affirmative defenses.⁶ In it, they argue that those defenses would curtail the plaintiff benefit plans' ability under ERISA "to rely on the written agreements presented to them and to enforce those agreements." Mem. at 13⁷ (internal quotation marks and citation omitted). Additionally, Plaintiffs contend that Defendants cannot raise the defenses of past practice or estoppel when, as here, "an ERISA plan's claim is based onclear and unambiguous contracts," id. at 16-17, and argue that Defendants' laches defense is improper, "[s]ince [Plaintiffs'] action for monetary damages was timely brought within the applicable statute of limitations," id. at 19-20. In response, Defendants allow that "Plaintiffs may be correct that [Defendants] cannot maintain [their] equitable defenses against the Union," but note that those defenses are still proper "against the Funds themselves." Opp'n Mem. at 8-9.⁸

On January 30, 2019, after reviewing the parties' arguments, the Court requested additional briefing "addressing the import of Cummings[ v. City of New York, 302 F. Supp. 3d 511, 524-25 (S.D.N.Y. 2017)] and other related caselaw to Defendants' past practices and estoppel defenses." Dkt. No. 55 ("January Text Order"). Both parties timely responded to that request by filing supplemental briefs, see Dkt. Nos. 56 ("Supplemental Memorandum"), 57 ("Supplemental Response"), which the Court will consider during the course of its analysis.

III. STANDARD OF REVIEW

A. Dispute Over the Proper Standard

The parties disagree as to the appropriate standard of review applicable to Plaintiffs' Motion. Plaintiffs argue that, because their "motion to strike . . . is based on facts and material outside the pleadings, [it] is the equivalent of a motion for partial summary judgment and should be considered by the Court [as such]." Mem. at 10 (citations omitted); see also Reply Mem. at 8-12.⁹ Defendants, on the other hand, argue that "[t]he general rule regarding the review of motions to strike affirmative defenses is that . . . the [c]ourt will not consider matters outside the pleadings," and point out that courts have bucked that trend "only where . . . both parties clearlyview the motion . . . as a motion for summary judgment." Opp'n Mem. at 5-6 (internal quotation marks and citations omitted). The Court agrees with Defendants and finds that Plaintiffs have not shown that this case is ripe for summary judgment.

Generally, "extrinsic evidence . . . cannot be considered in a true motion to strike." Paretti v. Cavalier Label Co., Inc., 702 F. Supp. 81, 85 (S.D.N.Y. 1988) (citing Kramer v. Living Aluminum, Inc., 38 F.R.D. 347, 348 (S.D.N.Y. 1965)); see also Reis, Inc. v. Spring11 LLC, No. 15-CV-2836, 2016 WL 5390896, at *5 (S.D.N.Y. Sept. 26, 2016) (collecting cases in support of the proposition that, "on a motion under Rule 12(f)[,] the Court will not consider matters outside the pleadings"). Therefore, even though "conversion of a motion to strike into a motion for summary judgment is not explicitly authorized by the Federal Rules of Civil Procedure," id. (citations omitted), a "court may treat [a] motion [to strike] as one for partial summary judgment pursuant to Rule 56" when the parties submit motion papers that fall outside the norm of "true" Rule 12(f) motions, S.E.C. v. Alexander, 248 F.R.D. 108, 110 (E.D.N.Y. 2007).

For example, certain district courts have treated motions to strike as motions for partial summary judgment "when facts outside the pleadings [were] offered." All. Media Grp., Inc. v. Mogul Media, Inc., No. 02-CV-5252, 2005 WL 1804473, at *1 (E.D.N.Y. July 28, 2005). However, the submission of extrapleading material will typically only trigger summary judgment treatment when (1) both parties, rather than just one, submitted facts outside of the pleadings; and/or (2) the...