The 9th U.S. Circuit Court of Appeals recently affirmed the dismissal of an action brought by several multi-employer funds against owners and officers of a Nevada glass and glazing corporation in Glazing Health & Welfare Fund v. Lamek. The funds alleged that unpaid contributions owed by the company were “plan assets” under ERISA and sued the businessmen in their individual capacities for the unpaid contributions claiming breach of ERISA fiduciary duties.

In rejecting the funds’ “plan assets” theory, the 9th Circuit reaffirmed its ruling in Bos v. Board of Trustees, which held that employers are not fiduciaries under ERISA as to unpaid contributions to ERISA benefit plans. The decision, which will help employers and executives facing similar claims, expressly denies that a multi-employer plan document can classify unpaid contributions as plan assets so as to impose fiduciary status upon an employer, its owner or its officers.

The case deepens the split among the circuits to have addressed the issue and increases the likelihood of Supreme Court review.

Multi-Employer Plans Assert That Unpaid Contributions Are Plan Assets

Employers do not become ERISA plan sponsors or fiduciaries merely by contributing to a multi-employer health or pension benefit fund (MEP). In general, unpaid contributions by employers to MEPs are not plan assets. See Cline v. Indus. Maint. Eng’g & Contracting Co., 200 F.3d 1223, 1234 (9th Cir. 2000), cited in Glazing Health, No. 16-16155, 2018 U.S. App. LEXIS 7056 (9th Cir. 2017); and Bos, 795 F.3d 1006 (9th Cir. 2015).

In Field Assistance Bulletin 2008-1, the Department of Labor reiterated its position that an employer contribution becomes an asset of a plan only when the contribution has been made. However, the 2nd and 11th Circuits recognize an exception to this general rule where the plan documents expressly define the fund to include future unpaid contributions by employers. See Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Constr., LLC, 779 F.3d 182 (2d Cir. 2015); and ITPE Pension Fund v. Hall, 334 F.3d 1011 (11th Cir. 2003).

In concluding that unpaid contributions can be plan assets at the time of nonpayment, the 2nd and 11th Circuits have treated employers (and potentially owners and officers) — who control the money contractually owed to the MEP — as MEP fiduciaries. Section 3(21) of ERISA defines a fiduciary to include any individual who “exercises any discretionary authority or discretionary control respecting management of [a] plan or exercises any authority or control respecting management or disposition of its assets.”

Many MEP plan documents broadly define “plan assets” to include all contributions required to be made to the MEP, including any unpaid contributions. In claims for unpaid contributions, MEPs frequently argue that contributing employers, and executives who control company finances, are ERISA fiduciaries as to the unpaid contributions. A court ruling that unpaid contributions are plan assets can thus create fiduciary liability for company executives as well as the company. In bankruptcy, such a ruling may make the unpaid contributions a non-dischargeable debt under Section 523(a)(4) of the Bankruptcy Code, which provides that debtors may not discharge debts incurred due to the debtor’s “fraud or defalcation while acting in a fiduciary capacity.”

In contrast to the 2nd and 11th Circuits, the 6th and 10th Circuits have declined to apply this exception. See Board of Trustees of Ohio Carpenters’ Pension Fund v. Bucci (In re Bucci), 493 F.3d 635 (6th Cir. 2007); and Navarre v. Luna (In re Luna), 406 F.3d 1192 (10th Cir. 2005).

Glazing Health Confirms Bos Ruling Extends Beyond Bankruptcy Cases

Lamek and Marshall are the sole owners and officers of Accuracy Glass & Mirror Company, which was party to labor agreements requiring it to contribute to the MEPs. The governing documents of each MEP stated that unpaid contributions were plan assets. For example, one of the MEP documents stated that “monies (whether paid, unpaid, segregated, or otherwise traceable, or not) become Trust Fund assets on the Due Date).” When Accuracy failed to make certain contributions to the MEPs required by the labor agreements, the MEPs sued Lamek and Marshall for breach of ERISA fiduciary duties.

While this case was pending, the 9th Circuit issued its ruling in Bos, a case with similar facts. As the owner and president of Bos Enterprises, Inc. (BEI), Bos personally controlled BEI’s finances as well as BEI’s payments to the MEPs in which BEI participated. After Bos filed a Chapter 7 bankruptcy petition in his individual capacity, the MEPs objected that $504,282.59 in unpaid MEP contributions owed by BEI was an obligation of Bos’ that could not be discharged under Bankruptcy Code Section 523(a)(4) as a debt incurred, due to Bos’ breach of fiduciary duty in failing to direct BEI to make these payments to the MEP. Ultimately, the 9th Circuit held that that MEP plan documents could not make unpaid contributions plan assets, thus following the 6th and 10th Circuits.

In the Glazing Health case, the 9th Circuit found that Bos foreclosed the MEPs’ claims against Lamek and Marshall. The court rejected the MEPs’ arguments that Bos does not control because it was a bankruptcy case and fiduciary duties are construed more broadly under ERISA than under the Bankruptcy Code. Thus, the 9th Circuit confirmed that the implications of Bos extend beyond bankruptcy to ERISA in general.

Significance of Glazing Health Decision

Glazing Health is the first circuit court decision arising outside of the bankruptcy context to reject the claim that fund documents can create fiduciary status by defining plan assets to include unpaid contributions. The case clearly holds that an employer cannot be a fiduciary as to unpaid contributions. Glazing Health should help employers and executives facing MEP claims for breach of fiduciary duty in failing to pay MEP contributions.

The Glazing Health decision also deepens the split among the circuits as to whether MEPs can classify unpaid contributions as plan assets so as to impose fiduciary status upon contributing employers and their executives. Because of this important circuit split, future Supreme Court review is possible.