575 B.R. 12
Bankr. E.D.N.Y.2017Background
- Plaintiffs are multi-employer ERISA benefit plans that claim All Seasons Siding, Inc. owed unpaid contributions under collective bargaining agreements; plaintiffs seek nondischargeability of $448,588.80 against debtor Walter Kakareko III under 11 U.S.C. § 523(a)(4).
- Kakareko was majority owner (up to 80%) and president of All Seasons, a signatory on company bank accounts, and shared check-signing and payment decisions with co-owner Henneborn during 2009–2013.
- Collective bargaining agreements and trust instruments expressly state employer contributions (including amounts due) are assets of the Funds and vested in the trustees.
- Plaintiffs moved for summary judgment arguing defendant was an ERISA fiduciary who defalcated by using plan assets (unpaid contributions) to pay other company and personal-related expenses.
- Defendant disputed fiduciary status and argued lack of the culpable mental state required for defalcation under Bullock; record shows competing testimony about payments and efforts to keep the business afloat (including personal loans and mortgage arrangements).
- The court denied summary judgment because material factual disputes—especially about defendant’s state of mind and credibility—preclude a finding of defalcation on the record presented.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether unpaid employer contributions are plan assets / establish an express/technical trust | Collective bargaining and trust agreements expressly treat unpaid contributions as assets of the Funds | Unpaid contributions are contractual obligations, not automatically plan assets (Halpin) unless agreements so provide | Held: Agreements here expressly make contributions (including amounts due) plan assets; element satisfied |
| Whether Kakareko exercised authority or control over plan assets (ERISA fiduciary) | Kakareko was signatory on accounts, participated in deciding amounts paid, and directed partial payments—thus exercised control | Kakareko contends he did not exercise requisite control or acted in good-faith efforts to preserve business; disputes about who made decisions | Held: Kakareko exercised authority/control over disposition of plan assets and is an ERISA fiduciary |
| Whether ERISA fiduciary status satisfies § 523(a)(4) "fiduciary capacity" requirement | ERISA creates a technical/statutory trust and ERISA fiduciaries meet § 523(a)(4) fiduciary requirement | Implicit: courts should narrowly construe § 523(a)(4) and not automatically equate ERISA fiduciary status with bankruptcy fiduciary status | Held: Court finds Kakareko acted in fiduciary capacity for § 523(a)(4) purposes (following cases treating ERISA fiduciaries as satisfying the requirement) |
| Whether defendant committed defalcation (culpable state of mind) | Kakareko consciously disregarded substantial/unjustifiable risk of violating fiduciary duties by diverting plan assets to other uses | Kakareko asserts lack of actual knowledge/recklessness; payments were made to keep business solvent, included personal loans to company; credibly disputed facts | Held: Denied summary judgment on defalcation—genuine dispute of material fact exists as to defendant’s intent; credibility issues require trial |
Key Cases Cited
- Bullock v. BankChampaign, N.A., 569 U.S. 267 (2013) (defalcation requires knowledge or gross recklessness; conscious disregard of substantial and unjustifiable risk)
- Rahm v. Halpin (In re Halpin), 566 F.3d 286 (2d Cir. 2009) (unpaid employer contributions are not plan assets unless agreement defines them as such)
- LoPresti v. Terwilliger, 126 F.3d 34 (2d Cir. 1997) (signing authority, control over payments and commingling can create ERISA fiduciary liability)
- Blyler v. Hemmeter (In re Hemmeter), 242 F.3d 1186 (9th Cir. 2001) (ERISA statutory fiduciary can satisfy § 523(a)(4) where statute defines res and fiduciary duties predate the wrongdoing)
- Davis v. Aetna Acceptance Co., 293 U.S. 328 (1934) (§ 523(a)(4) requires trustee status antecedent to the wrong)
- Mertens v. Hewitt Associates, 508 U.S. 248 (1993) (ERISA defines fiduciary functionally by exercise of control over plan management or assets)