By: Amanda Sonneborn and John Duke
In a decision that serves as a good reminder of the potential for individual liability for plan fiduciaries, the Southern District of New York recently concluded that a former Chief Executive Officer was personally liable for repayment of approximately $216,000 in unpaid benefit contributions. Trustees of the Sheet Metal Workers International Association Local No. 38 Vacation Fund v. Hopwood, Case No. 7:09-cv-05088-ER (S.D.N.Y. September 27, 2012). Following lawsuits by numerous multiemployer plan trustees for failure to contribute funds, the court conclude that the former CEO was a fiduciary, that he breached his fiduciary duty, and thus, he was obligated to transfer the appropriate contributions to the funds to account for his breaches.
Richards Conditioning Corporation was a signatory to a multi-employer collective bargaining agreement, which obligated it to contribute to several benefit plans. The company fell behind on its benefit plan contributions and the corporate officers reached an agreement with the union to pay back the due contributions, with a personal guarantee of the payback. Yet, the company did not comply with the payback plan and eventually the fund filed suit seeking the guaranteed contributions. During the course of litigation, the CEO was deposed and during his deposition, he admitted the company did not make benefit contributions and underestimated work hours, because the company wanted to avoid laying off employees.
The Court ultimately concluded that the company was obligated to pay the back benefits. The Court also determined that the CEO was individually liable for certain benefit contributions, because he intentionally underreported the work hours of employees to reduce their benefits under the plan. As the CEO, he exercised control over plan assets in the form of delinquent contributions, and as he exercised control over plan assets, he was acting as a fiduciary. As a fiduciary, he was obligated to provide participants with earned benefits, and by reducing the hours reported, he intentionally denied participants benefits due. The Court did conclude that the CEO’s individual liability, however, would be reduced by any amount the union was able to recover from the company itself.