US v. Mason Tenders Dist. Council of Greater NY

• Decision Date: 18 August 1995
• Docket Number: No. 94 Civ. 6487 (RWS).,94 Civ. 6487 (RWS).
• Citation: 909 F. Supp. 882
• Parties: UNITED STATES of America and Robert B. Reich, Secretary of the United States Department of Labor, Plaintiffs, v. MASON TENDERS DISTRICT COUNCIL OF GREATER NEW YORK, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

909 F. Supp. 882

UNITED STATES of America and Robert B. Reich, Secretary of the United States Department of Labor, Plaintiffs, v. MASON TENDERS DISTRICT COUNCIL OF GREATER NEW YORK, et al., Defendants.

No. 94 Civ. 6487 (RWS).

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

May 15, 1995.

Order Denying Reconsideration August 18, 1995.

COPYRIGHT MATERIAL OMITTED

Mary Jo White, U.S. Atty., S.D.N.Y. (Allan N. Taffet, Manvin S. Mayell, Aimee B. Wolfson, of counsel), New York City, for U.S.

Dominic F. Amorosa, New York City, for James Lupo.

Andrew M. Lawler, P.C. (Andrew M. Lawler, Maurice M. McDermott, of counsel), New York City, for Joseph Fater.

OPINION

SWEET, District Judge.

Plaintiffs, the United States of America and Robert B. Reich, Secretary of the United States Department of Labor (collectively the "Government") moved for an order pursuant to Rule 56, Fed.R.Civ.P., granting them partial summary judgment on Claim V against defendants James Lupo ("Lupo") and Joseph Fater ("Fater"), and Claim VII (against Fater), which charge ERISA violations based on the Pension and Welfare Funds' purchase of the 18th Street building in Manhattan and 6060 Indian Creek in Miami Beach, Florida.

Defendant Fater has moved for partial summary judgment on the Fifth and Seventh Claims for Relief sought by the complaint, insofar as the claims allege that he breached his fiduciary duties as a trustee of the Mason Tenders District Council's Pension Fund and Welfare Fund.

For the following reasons, the Government's motion is granted and Fater's cross-motion is denied.

The Parties

Lupo and Fater are two former Trustees of the Mason Tenders District Council of Greater New York Pension and Welfare Fund (collectively the "Trust Funds").

The Mason Tenders District Council represents workers throughout New York City and on Long Island who perform numerous laborer jobs including general labor, brick hauling, and asbestos removal. The District Council also holds and administers, jointly and with contributing employers, seven multi-million dollar trust funds. The Trust Funds are "employee benefit plans" within the meaning of the Employee Retirement Income Security Act ("ERISA") § 3(3), 29 U.S.C. § 1002(3). The District Council Pension and Welfare Fund are two of the largest Trust Funds. The Pension Fund collects contributions from employers in order to provide pensions to retired members of the Locals. As of 1992, the Pension Fund covered more than 6,600 current and retired union members and had assets of more than $180 million. The Welfare Fund pays medical benefits to members and retirees of the Locals and their families. In 1987, the Welfare Fund had net assets of approximately $30 million; by 1992, the Welfare Fund had net assets of less than $15 million.

Prior Proceedings

The complaint in this action was filed in September 1994. Summary judgment against these defendants on these counts was requested in a motion filed by the Government on November 1, 1994. On consent of all parties the argument on these claims against Fater and Lupo were adjourned until February, 1994.

On January 6, 1994 Fater filed a cross-motion for partial summary judgment with respect to the same claims, five and seven.

Argument was heard on these motions on February 22, 1995 and the motions were considered fully submitted as of that date.

Facts

The West 18th Street Property

The Fifth Claim alleges that Fater and Lupo and the other Pension Fund trustees "caused the Pension fund to purchase the 18th Street Property from the seller for $24 million, which was $16.5 more that the seller had paid for the building less than ten months earlier."

A report from DiFranco Realty dated December 29, 1989 appraised the value of the property at $15,950,000. A report from Diane Mistretta dated January 2, 1990 appraised the value of the property at $15,850,000. A report from Wasserman Realty Service dated January 4, 1990 valued the property at $8,300,000.

On February 1, 1990 the Pension Fund loaned $15,850,000 to Ronald Miceli ("Miceli") to purchase the 18th Street building. On that same date Miceli purchased the building for $7,465,000.

On November 13, 1990 the Pension Fund trustees met and approved unanimously the purchase of the 18th Street Property from Miceli, established a realty corporation to hold title to the property, named Fater President of the Corporation and authorized Gerard W. Cunningham ("Cunningham") to execute the purchase.

Lupo attended the November 13 meeting. Fater was not present at the meeting and took no part in the vote. His counsel, Cunningham, was present at the meeting and presented the Real Estate Committee report which included the discussion of the 18th Street property. Fater was on the Real Estate Committee at that time.

The building was purchased by the Pension Fund on November 27, 1990 for $24,000,000.

The Florida Property

The complaint alleges that "... trustee ... Fater ... approved the Welfare Fund's purchase of 6060 Indian Creek Drive, Miami Beach, Florida for the price of $1.45 million, $600,000 more than the valuation contained in any contemporaneous valuation of the property."

A June 10, 1987 appraisal letter from Appraisal Professionals, Inc. addressed to Frank Lupo, Trustee, Mason Tenders District Council, estimated that the market value of the property was between $750,000.00 and $850,000.00.

The purchase of the property for $1,400,000 was approved unanimously at the October 28, 1987 trustees' meeting. Fater was not present at the meeting. His counsel, Gerard W. Cunningham ("Cunningham"), was present and gave the Real Estate Committee report including a discussion of the Florida property. Fater was a member of the Real Estate Committee.

At a meeting of the trustees on April 6, 1988, at which Fater was present, minutes of the October 28, 1987 meeting, including discussion of the Florida property, were approved unanimously without alteration.

Discussion

Defendants Breached their Fiduciary Duties as Trustees

A motion for summary judgment may be granted only when there is no genuine issue of material fact remaining for trial and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Silver v. City Univ., 947 F.2d 1021, 1022 (2d Cir.1991). The moving party bears the burden of proving that no genuine issue of material fact exists. Brady v. Town of Colchester, 863 F.2d 205, 210 (2d Cir.1988); Pittston Warehouse Corp. v. American Motorists Ins. Co., 715 F.Supp. 1221, 1224 (S.D.N.Y.1989), aff'd, 954 F.2d 62 (2d Cir.1992).

The Second Circuit has repeatedly noted that "as a general rule, all ambiguities and inferences to be drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party." Brady, 863 F.2d at 210; see also Cartier v. Lussier, 955 F.2d 841, 845 (2d Cir.1992); Burtnieks v. City of New York, 716 F.2d 982, 983-84 (2d Cir.1983); Swan Brewery Co. v. United States Trust Co., 832 F.Supp. 714, 717 (S.D.N.Y.1993).

The remedy of summary judgment is viewed "as an integral part of the Federal rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1986) (citations omitted). Once the moving party has met its burden of coming forward with evidence to show that no material fact exists for trial, the nonmoving party must do more than "simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

The Government contends that Fater and Lupo breached their fiduciary duties under ERISA in connection with the purchase of the 18th Street property and additionally that Fater breached his duty in connection with the Florida property.

ERISA requires a pension fund fiduciary to act "solely in the interest" of a plan's participants and beneficiaries, and to discharge his duties "with the care, skill, prudence, and diligence ... that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character...." 29 U.S.C. § 1104(a)(1)(B).

In Katsaros v. Cody, 744 F.2d 270 (2d Cir.), cert. denied, 469 U.S. 1072, 105 S.Ct. 565, 83 L.Ed.2d 506 (1984), the Court of Appeals described the now well-settled standards for evaluating the prudence of a trustee's acts:

Prudence is measured according to the objective "prudent person" standard developed in the common law of trusts. Donovan v. Mazzola, 716 F.2d 1226, 1231 (9th Cir.1983), cert. denied, 464 U.S. 1040 104 S.Ct. 704, 79 L.Ed.2d 169 (1984); S.Rep. No. 127, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Ad.News 4639, 4838, 4865 (the fiduciary responsibility section, in essence, codifies and makes applicable to these fiduciaries certain principles developed in the evolution of the law of trusts.) The court's task is to inquire "whether the individual trustees, at the time they engaged in the challenged transactions, employed the appropriate methods to investigate the merits of the investment and to structure the investment." Donovan v. Mazzola, 716 F.2d 1226, 1232 (9th Cir.1983), cert. denied, 464 U.S. 1040 104 S.Ct. 704, 79 L.Ed.2d 169 (1984); Donovan v. Cunningham, 716 F.2d 1455, 1467 (5th Cir.1983) ("courts have focused the inquiry under the `prudent man' rule on a review of the fiduciary's independent investigation of the merits of a particular investment"). A trustee's lack of familiarity with investments is no excuse: under an objective standard trustees are to be judged "according to the standards of others `acting in a like capacity and familiar with such matters.'" Marshall v. Glass/Metal Ass'n, 507 F.Supp. 378, 384 (D.Haw.1980).

Katsaros v. Cody, 744 F.2d at 279; see also Fink...