GREGORY BOS, Appellant, v. BOARD OF TRUSTEES, in their capacities as Trustees of the Carpenters Health and Welfare Fund of California; Carpenters Vacation-Holiday Trust Fund for Northern California; Carpenters Pension Trust Fund for Northern California; Carpenters Annuity Trust for Northern California; Carpenters Training Trust Fund for Northern California; Northern California Carpenters Regional Council, Appellee.
No. 13-15604
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
July 30, 2015
D.C. No. 2:12-cv-02026-MCE
FOR PUBLICATION
OPINION
Appeal from the United States District Court for the Eastern District of California Morrison C. England, Jr., Chief District Judge, Presiding
Argued and Submitted May 14, 2015—San Francisco, California
Filed July 30, 2015
Before: Diarmuid F. O‘Scannlain and Sandra S. Ikuta, Circuit Judges and Larry A. Burns,* District Judge.
Opinion by Judge O‘Scannlain
SUMMARY**
Bankruptcy
Reversing the district court‘s judgment affirming the bankruptcy court, the panel held that a debt was not nondischargeable as a debt incurred due to the Chapter 7 debtor‘s fraud or defalcation while acting in a fiduciary capacity.
Agreeing with the Sixth and Tenth Circuits, the panel held that the debtor was not a “fiduciary” under
The panel reversed with instructions to remand to the bankruptcy court with instructions to discharge the debt.
COUNSEL
Tracy L. Mainguy, Weinberg, Roger & Rosenfeld, Alameda, California, argued the cause, and Christian L. Raisner, Emily P. Rich, Jordan D. Mazur, and Jolene E. Kramer filed the brief for the appellees.
OPINION
O‘SCANNLAIN, Circuit Judge:
We must decide whether an employer‘s contractual requirement to contribute to an employee benefits trust fund makes it a fiduciary of unpaid contributions.
I
Beginning in 2007, Gregory Bos was owner and president of Bos Enterprises, Inc. (“BEI“). BEI was a member of the Modular Installers Association, an employer association. As president of BEI, Bos agreed that BEI would be bound by the Carpenters’ Master Agreement, and several trust agreements. The Carpenters’ Master Agreement required each employer—including BEI—to contribute monthly payments based on hours of work to the trust funds (the “Funds“)1 for the purpose of providing employee benefits. Each trust agreement defined its respective fund as including “all contributions required by the [Carpenters’ Master Agreement] . . . to be made for the establishment and maintenance of the [respective plan], and all interest, income and other returns of any kind.” With the exception of the Health and Welfare Fund Agreement, the trust agreements defined each fund to include, as well, any other money received or held because of or pursuant to the trust.
Neither party disputes that Bos personally had full control over BEI‘s finances, as
The Board of Trustees (“the Board“)—charged with administering the Funds—subsequently filed a grievance against Bos and BEI to recover the outstanding amount owed to the Funds under the Carpenters’ Master Agreement. An arbitrator granted the Board an award of $504,282.59 against Bos, individually and as doing business as BEI, and BEI.
On February 28, 2011, Bos and his spouse filed a joint petition for Chapter 7 bankruptcy. On May 27, 2011, the Board filed a complaint against Bos and his spouse contesting the dischargeability of the $504,282.59 debt. The Board subsequently amended its complaint so as to dismiss Bos‘s spouse.
On July 12, 2012, the bankruptcy court entered judgment, concluding that Bos had committed defalcation while acting as a fiduciary of the Funds and that the $504,282.59 debt to the Funds was therefore nondischargeable.2 On March 8, 2013, the district court affirmed the bankruptcy court on the same grounds, and on March 12, 2013, the district court entered an order to that effect. Bos timely appealed.3
II
Bos argues that the bankruptcy court and district court erred in concluding that he was a “fiduciary” under
A
Section 523(a)(4) of the Bankruptcy Code provides that Chapter 7 debtors may not discharge debts incurred due to the debtor‘s “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”
If an individual is a fiduciary for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA“),
Both the bankruptcy court and the district court concluded that Bos‘s debt was nondischargeable under
B
We have consistently held that unpaid contributions by employers to employee benefit funds are not plan assets. See Cline v. Indus. Maint. Eng‘g & Contracting Co., 200 F.3d 1223, 1234 (9th Cir. 2000). Several district courts within this Circuit have recognized an exception to Cline, however, when the plan document expressly defines the fund to include future payments. See, e.g., Bd. of Trs. v. River View Constr., No. C-12-03514PJH(DMR), 2013 WL 2147418, at *6 (N.D. Cal. Apr. 17, 2013) (concluding that when the plan document defined the fund as including “all Contributions required . . . to be made,” unpaid contributions were plan assets); Trs. of the S. Cal. Pipe Trades Health & Welfare Tr. Fund v. Temecula Mech., Inc., 438 F. Supp. 2d 1156, 1165 (C.D. Cal. 2006) (concluding that when the plan document defined the fund as including money “due and owing to the Fund by the Employers,” unpaid contributions were plan assets). These courts have construed such language as imposing ERISA fiduciary status upon an employer simply by virtue of its control over unpaid contributions to the fund. See, e.g., River View Constr., 2013 WL 2147418, at *6; Temecula, 438 F. Supp. 2d at 1168-69.
We have not yet determined whether to recognize such an exception to Cline. See Carpenters Pension Tr. Fund for N. Cal. v. Moxley, 734 F.3d 864, 869 (9th Cir. 2013) (expressly declining to decide whether a plan document can classify unpaid contributions as plan assets so as to impose fiduciary status upon an employer). Moreover, the circuits that have addressed the issue are split.
The Eleventh Circuit, for instance, recognized the possibility of such an exception in ITPE Pension Fund v. Hall, 334 F.3d 1011, 1016 (11th Cir. 2003). Notably, the court there emphasized that the plan document defined the fund as including receivable property, rather than mere receivables, distinguishing between “a contractual or legal claim for payment of the money due, in contrast to the actual money due.” Id. at 1014 n.4. The court explained that if the plan asset were merely a contractual right to payment, the employer would have no authority over the asset so as to establish a fiduciary relationship. Id. But because the plan document defined the fund as including receivable property, the court concluded that the unpaid contributions themselves could become fund assets at the time of nonpayment, and the employers—who had control over the money which they were contractually obligated to pay to the fund—would
The Second Circuit has similarly construed a plan document designating plan assets to include unpaid contributions as establishing fiduciary status for an employer who had authority to make such contributions. See Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Constr., LLC, 779 F.3d 182, 189 (2d Cir. 2015); see also Rahm v. Halpin (In re Halpin), 566 F.3d 286, 290 (2d Cir. 2009) (speculating that a plan document could designate unpaid contributions as plan assets sufficient to establish fiduciary status for purposes of
C
Other circuits, however, have declined to apply such an exception, particularly in the context of
The Tenth Circuit, for instance, declined to apply the exception in Navarre v. Luna (In re Luna), 406 F.3d 1192 (10th Cir. 2005).4 The Luna court first concluded that a plan document could impose on an employer a contractual obligation that would create some form of plan asset. Id. at 1198-201. Departing from the approach taken by the Eleventh Circuit in Hall, however, the Luna court emphasized that the ERISA definition of “asset” is determined by reference to property law. Id. at 1199. “Under ordinary notions of property rights, an ERISA plan does not have a present interest in the unpaid contributions until they are actually paid to the plan.” Id. Rather, “the plan holds a future interest in the collection of the contractually-owed contributions“; in other words, regardless of the language in the plan document, the plan holds the contractual right to collect the unpaid contributions—not the unpaid contributions themselves. Id. at 1199-200; see also Restatement (First) of Property ch. 1 intro. note (1936) (explaining that “property” includes intangibles, such as a chose in action). Thus, the proper question regarding control of the asset is not whether
the employer controlled the money that it was obligated to pay to the plan, but rather whether the employer had control over the contractual right to collect the unpaid contributions. In re Luna, 406 F.3d at 1202-08. Because the employers in Luna had no control over the contractual right to collect the unpaid contributions—they simply had control over the money itself—the court concluded that the employers were not plan fiduciaries, and therefore the debt incurred by failing to make contractually-required payments to the plan was dischargeable regardless of
The Sixth Circuit has also declined to apply an exception to the general rule that an employer cannot be an ERISA fiduciary with respect to unpaid contributions. In Board of Trustees of the Ohio Carpenters’ Pension Fund v. Bucci (In re Bucci), 493 F.3d 635 (6th Cir. 2007), for instance, the court declined to apply the exception in the
D
We agree with the view taken by the Sixth and Tenth Circuits. Indeed, it comports with the limited approach we take in recognizing fiduciary status, particularly in the
Moreover, a typical employer5 never has sufficient control over a plan asset to make it a fiduciary for purposes of
First, as the Luna court explained, such asset could be classified as the contractual right to collect payments once they become due. 406 F.3d at 1199-200; see also Restatement (Third) of Trusts § 40 cmt. b (2003) (noting that trust property may include choses in action or claims against third parties). In the case at bar, such a right could be enforced either under the Carpenters’ Master Agreement or
the promissory note. In either event, however, an employer with no authority over the management of the plan—such as BEI here—has no control over enforcing such a right; rather, as demonstrated by the existence of the present lawsuit brought by the Board against Bos, the designated fund administrator has the authority to enforce the contractual right. Thus, because an employer would lack the requisite control over such plan asset, it could not qualify as a fiduciary for purposes of either ERISA or
Second, as in Hall, such asset could be classified as the unpaid past-due contributions. 334 F.3d at 1014. There, however, the event that created the debt—the nonpayment of the funds—was the same event that created the fiduciary status, and thus, the debt would not fall under
Third, as the Board argues here, such asset could be classified as amounts which the employer must eventually contribute to the plan, but which are not yet due, thus avoiding the problem of the act of wrongdoing creating the fiduciary status. The classification logically fails, however, as, until the time payment is due, the plan does not actually possess the money, and in fact has no present right to it. See Restatement (First) of Property § 153 (1936) (explaining that an owner has a present interest in particular property only if it may immediately exercise control over such property). Thus, such asset is in fact more appropriately classified as the contractual right to bring a claim against the employer for delinquent payments if the payments are in fact never made. Because, as discussed above, the typical employer—like BEI—would have no control
Therefore, consistent with our general rule that unpaid contributions to employee benefit funds are not plan assets, see Cline, 200 F.3d at 1234, Bos did not engage in defalcation for purposes of
III
Because Bos did not act as a fiduciary under
REVERSED AND REMANDED WITH INSTRUCTIONS.