470 B.R. 649
Bankr. D. Mass.2012Background
- The Funds are three ERISA-governed, multi-employer employee benefit plans; the Plaintiff is trustee and treasurer of the Funds and president/secretary-treasurer of the Union.
- Zani Tile Co., Inc. (Zani) was Debtor Fahey's company; Fahey was its president, treasurer, and sole shareholder until August 2010.
- Zani entered a CBA with the Union and agreed to deduct dues and pay contributions to the Funds; trust agreements treat all contributions as plan assets.
- Delinquent Deductions and Contributions began: Deductions timely until Nov 2008, then late starting March 2009, with full nonpayment by Aug 2010; some funds recovered from contractors.
- A district court judgment in 2011 awarded the Plaintiff about $276,341 for unpaid Deductions and Contributions through April 2010; Debtor filed Chapter 7 in Jan 2011.
- Plaintiff sought nondischargeability under 11 U.S.C. § 523(a)(4) for Contributions; Debtor conceded Deductions were nondischargeable, leaving Contributions as the dispute.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Funds express or technical trusts under ERISA for § 523(a)(4)? | Funds constitute ERISA technical trust. | Not necessarily; must show express/technical trust existed prior to defalcation. | Funds are technical trusts created by ERISA; trust existed before defalcation. |
| Is Fahey an ERISA fiduciary with respect to Funds' assets? | Fahey had discretionary control as CBA signatory and Zani leader. | Control over nonpayment does not equal fiduciary discretion; breach of contract alone isn’t fiduciary action. | Fahey is not an ERISA fiduciary under 29 U.S.C. § 1002(21)(A); no discretionary control over plan assets. |
| Did Fahey defalcate with respect to unpaid Contributions? | Defalcation occurred due to breach of fiduciary duties and self-dealing. | No fiduciary status; defalcation requires fiduciary breach precluding mere contractual breach. | Defalcation not established; no fiduciary status means no § 523(a)(4) defalcation. |
Key Cases Cited
- In re Duncan, 331 B.R. 70 (Bankr. E.D.N.Y. 2005) (ERISA fiduciary status requires defined duties prior to defalcation)
- NYSA-ILA Med. & Clinical Servs. Fund v. Catucci, 60 F. Supp. 2d 194 (S.D.N.Y. 1999) (trust/assets and fiduciary status in ERISA contexts)
- Trs. of Conn. Pipe Trades Local 777 Health Fund v. Nettleton Mechanical Contractors, Inc., 478 F. Supp. 2d 279 (D. Conn. 2007) (fiduciary status and plan assets under ERISA; breach analysis)
- In re Luna, 406 F.3d 1192 (10th Cir. 2005) (breach of contract alone not enough to create fiduciary status)
- In re Sullivan, 217 B.R. 670 (Bankr. D. Mass. 1998) (statutory trust concepts under ERISA for § 523(a)(4))