The 9th U.S. Circuit Court of Appeals, citing its own precedent, has ruled that the owners of a company that was part of a multiemployer benefit plan were not fiduciaries with respect to withdrawal liability owed to the plan.
The trustees of Glazing Health and Welfare Fund and several other employee benefit trust funds appeal from a district court’s dismissal of their lawsuit against the sole owners and officers of Accuracy Glass & Mirror Company, Inc. The lawsuit sought unpaid contributions owed under the contracts governing the benefit plans that the trusts managed for Accuracy. The trusts argue that, pursuant to those contracts, the unpaid contributions were trust assets over which the owners exercised control and that the trusts therefore could sue the individuals as fiduciaries to collect those contributions.
However, the appellate court agreed with the district court that a previous 9th Circuit case, Bos v. Board of Trustees, which held that parties to an Employee Retirement Income Security Act (ERISA) plan cannot designate unpaid contributions as plan assets, forecloses the trusts’ claim.
The appellate court noted that in Cline v. Industrial Maintenance Engineering & Contracting Co., it adopted the general rule that “[u]ntil the employer pays the employer contributions over to the plan, the contributions do not become plan assets over which fiduciaries of the plan have a fiduciary obligation.”
In addition, after recognizing disagreement in sister circuits over whether an individual who controls money contractually owed to ERISA funds is a fiduciary under ERISA, the 9th Circuit, in Bos, sided with the circuits that “declined to apply an exception to the general rule that an employer cannot be an ERISA fiduciary with respect to unpaid contributions.”
“In other words, we held that even an ERISA plan that treats unpaid contributions as plan assets does not make an employer a fiduciary with respect to those owed funds,” the panel wrote in its current opinion.
The trusts argue that Bos does not control in this ERISA case because it was a bankruptcy case, and fiduciary duties are construed more broadly under ERISA than under the Bankruptcy Code. The trusts cited In re Cantrell, in which the 9th Circuit said, “To help fulfill ERISA’s broadly protective purposes, Congress commodiously imposed fiduciary standards on persons whose actions affect the amount of benefits retirement plan participants will receive.”However, the appellate court pointed out that in Bos, it declined to recognize an exception to the “general rule that unpaid contributions to employee benefit funds are not plan assets” and accordingly held that Bos was not a fiduciary under ERISA. Although the trusts argue that this result conflicts with ERISA policy, the appellate court said it, as a three-judge panel, is bound by Bos, regardless, citing Miller v. Gammie, which said a prior circuit decision on a question of federal law is binding on a three-judge panel in the absence of an intervening Supreme Court decision.