627 B.R. 305
Bankr. W.D. Pa.2021Background
- Debtors Jonathan Hawranko and William Roetter co-owned Roetters Painting, LLC, which was signatory to a CBA requiring employer fringe-benefit contributions to multiemployer Funds governed by Trust Agreements.
- From 2016–2019 the Company failed to remit required fringe contributions; the Funds sued and obtained a default judgment against the Company; Debtors filed Chapter 7 in May 2020.
- Count I (employee wage withholdings $11,720.45) was stipulated nondischargeable under §523(a)(4) and resolved in favor of the Funds.
- Count II (disputed unpaid fringe contributions ~ $158,481 plus interest) alleged defalcation by Debtors while acting in a fiduciary capacity; plaintiff sought summary judgment.
- Key factual points: Debtors jointly managed the two-person company; both signed checks; Debtors periodically withdrew substantial ‘‘guaranteed payments’’ as personal compensation; monthly contribution reports were prepared and submitted without full payment.
- The Court considered whether unpaid contributions were ERISA plan assets (and thus created a trust res) and whether any fiduciary status preexisted the nonpayment such that §523(a)(4) nondischargeability applies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether unpaid fringe contributions are ERISA "plan assets" and when they become assets | Funds: Trust Agreement language vests title in Trustees so unpaid contributions are plan assets (accounts receivable) prior to payment | Debtors: Contributions not plan assets until they are due under CBA/Trust Agreements | Held: Contributions become plan assets only when they are due and owing; pre-due receivables are not plan assets. |
| Whether Debtors were fiduciaries under ERISA and §523(a)(4) with respect to unpaid contributions | Funds: Debtors exercised control/authority over company funds and reports, making them fiduciaries under ERISA and §523(a)(4) | Debtors: ERISA fiduciary status (if any) is distinct and narrower under §523(a)(4); any fiduciary role arose only when contributions became due | Held: Even if ERISA fiduciaries after contributions became due, that fiduciary status sprang from the failure to pay and therefore does not satisfy §523(a)(4)’s narrower fiduciary requirement. |
| Whether a trust sufficient for §523(a)(4) existed prior to the wrongful act | Funds: Trust Agreements created an express/technical trust in favor of the Funds | Debtors: No preexisting trust res or duties owed by the individuals separate from company obligations | Held: No trust relationship existed prior to the nonpayment; the alleged trust would have arisen from the very act creating the debt, which Davis forbids for §523(a)(4). |
| Whether Debtors' conduct constitutes defalcation (culpable state of mind) | Funds: Debtors deliberately paid themselves while failing to pay contributions, showing culpability/gross recklessness | Debtors: Withdrawals were compensation; reasonableness disputed; factual issues remain | Held: Court found factual disputes as to defalcation; because fiduciary status under §523(a)(4) was lacking, defalcation analysis was moot for summary judgment purposes. |
Key Cases Cited
- Davis v. Aetna Acceptance Co., 293 U.S. 328 (Sup. Ct.) (trust must preexist wrongdoing to support nondischargeability)
- Bucci v. McReynolds, 493 F.3d 635 (6th Cir.) (ERISA fiduciary status that springs from nonpayment cannot satisfy §523(a)(4))
- Hunter v. Philpott, 373 F.3d 873 (8th Cir.) (fiduciary status must preexist the act creating the debt)
- Bos v. Board of Trustees, 795 F.3d 1006 (9th Cir.) (similar holding that trust cannot arise from the wrongful act for §523(a)(4))
- Bullock v. BankChampaign, N.A., 569 U.S. 267 (Sup. Ct.) (defalcation includes culpable mental state: knowledge or gross recklessness)
- Cioppa v. Laborers Combined Funds of W. Pa., 346 F. Supp. 2d 765 (W.D. Pa.) (construed trust language making certain delinquent contributions plan assets)
- Molinaro Corp. v. Laborers' Combined Funds of W. Pa., 234 F. Supp. 3d 660 (W.D. Pa.) (unpaid contributions become plan assets at the moment they become due)