By: Ian Morrison and Nadir Ahmed,

In Trustees of Sheet Metal Workers Int’l Ass’n Local No. 30 Vacation Fund v. Hopwood, S.D.N.Y., No. 7:09-cv-0588-ERR, Sept. 27, 2012, the District Court granted summary judgment in favor of a number of union benefit funds and found the Company’s CEO personally liable for the company’s failure to pay fringe benefit contributions owed to the funds due to his breach of his ERISA fiduciary duties.  This decision is a cautionary tale that every executive should heed – substantial personal liability may flow from decisions affecting ERISA plans, even where the decisions are made with the intention of benefiting employees.

In 1990, the Local Union 38 of the Sheet Metal Workers’ International Association (the “Union”) entered into a Collective Bargaining Agreement (“CBA”) with a set of employers, including Defendant Richards Conditioning Corporation (“RCC”), whose CEO was Defendant Martin Hopwood.  The CBA committed the employers to make contributions for certain fringe benefits to the Union Trust Funds (the “Funds”).  After making these payments for almost a decade, in 2009, RCC fell behind in its fringe benefit contributions and entered into an agreement with the union to set up a payment schedule to catch up on the delinquent payments.  Martin Hopwood, the CEO of RCC, along with his brothers, personally guaranteed these payments.  When the Company failed to make payments under the agreement, the Funds sued. 

After addressing a contract-based claim, the Court turned to the ERISA claim.  The Court found that Martin Hopwood breached his ERISA fiduciary duties under 29 U.S.C. §1109(a), and was therefore personally liable to the plan for any losses resulting from the breach.  The court found that Martin Hopwood was an ERISA fiduciary because he admittedly exercised discretionary authority and control over the management or disposition of plan assets.  The court found these plan assets included the participant contributions that were not remitted by the employer to the Funds.  During discovery, Martin Hopwood admitted to underreporting the hours that union employees had worked to reduce benefits obligations instead of having to terminate employees.  The Court found this knowing reduction in the participants’ benefits to be a breach of Martin’s fiduciary duties under ERISA.  Accordingly, the court found Martin personally liable under 29 U.S.C. §1109(a) for the full amount of the losses to the fund, which were $216,132.24.

In light of this decision, executives who make decisions that impact the benefits provided under an ERISA plan should recognize that personal liability may attach to their decision and should consult with their attorney prior to taking action.  Here, the employer’s actions appear to have been well-intentioned (i.e., reducing benefit costs to avoid layoffs) but they disregarded the terms of the applicable ERISA plans and governing contribution agreements, giving rise to significant personal liability under ERISA.