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CASTANEDA v. BALDAN

January 13, 1997

ARTHUR T. CASTANEDA, et al., Plaintiffs,
v.
RICK J. BALDAN, et al., Defendants.



The opinion of the court was delivered by: MOSKOWITZ

 BACKGROUND

 The complaint was filed on December 30, 1994. Winterton and the Baldan Plan filed answers to the complaint. Baldan never filed a response to the complaint, and a default was entered against him on March 24, 1995. On November 1, 1995, Winterton filed a third-party complaint for indemnity against The Epler Company, a benefits and actuarial consulting firm who had acted as administrators, consultants, and advisors to the Associated Builders and Contractors and the Baldan Plan. Winterton claimed he relied upon the knowledge, legal advice, and expertise of Epler to advise him concerning the Baldan Plan and that all the allegations raised by plaintiffs arose out of actions, or failure to take actions, which were recommended by Epler. On November 20, 1995, a Stipulation and Order was filed dismissing Epler and barring future claims against Epler and The Grant Nelson Group, which had also performed consulting work relating to the Baldan Plan. The Order further stated that "the effect, if any, of the settlement . . . on . . . Winterton's liability will be determined at a later date." Stipulation and Order Re: Good Faith Settlement at 5-6. This settlement resulted in the full payment to the plaintiffs of the actual losses to the Baldan Plan as a result of Baldan's failure to make contributions. See Transcript of Hearing on Mar. 11, 1996, at 3-4.

 On March 11, 1996, this Court denied cross-motions for summary judgment. On May 22, 1996, the Court denied the plaintiffs' second motion for summary judgment, indicating that a further order would be issued to clarify what duties a plan administrator and fiduciary has with regards to a pension plan.

 DISCUSSION

 I. The Court's Prior Holdings on the Motions for Summary Judgment

 A. The Duties to Make Reasonable Collection Efforts and Notify Beneficiaries

 On the parties' cross-motions for summary judgment, the Court found that a plan administrator and fiduciary has a "duty to take reasonable steps to ensure collection," see Transcript of Hearing on Mar. 11, 1996, at 36, and if he has decided not to seek collection of contributions owed to the plan, "he has a duty to notify [plan beneficiaries] that he finds it not in the best interest of the plan to incur the expenses to seek the contribution," id. at 37. See Central States, Southeast & Southwest Areas, Pension Fund v. Central Transp., Inc., 472 U.S. 559, 571-72, 86 L. Ed. 2d 447, 105 S. Ct. 2833 (1985) ("ERISA clearly assumes that trustees will act to ensure that a plan receives all funds to which it is entitled, so that those funds can be used on behalf of participants and beneficiaries. . . ."); Diduck v. Kaszycki & Sons Contractors, Inc., 874 F.2d 912, 916 (2d Cir. 1989) (same); see also 29 U.S.C. § 1104(a)(1)(A) (plan fiduciary "shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and ... for the exclusive purpose of providing benefits to participants and their beneficiaries"). Having defined Winterton's fiduciary duty in this regard, however, the Court denied the cross-motions finding that there is a material dispute of fact whether Winterton acted reasonably in not taking any action to collect delinquent contributions from Baldan. At trial, the Court as fact-finder will resolve the factual disputes and the ultimate question of whether Winterton's actions demonstrate the "care, skill, prudence, and diligence" that the law requires of fiduciaries, 29 U.S.C. § 1104(a)(1)(B).

 B. The Baldan Plan Was Not a Multiemployer Plan

 The Court's finding that the Baldan Plan was not a multiemployer plan, see Transcript of Hearing on May 22, 1996, at 24-25, has no significance in the context of Winterton's duty as plan administrator and fiduciary to make reasonable collection efforts. While Central States and its progeny have typically involved multiemployer plans, see Central States, 472 U.S. at 565; Diduck, 874 F.2d at 913-15; Santa Monica Culinary Welfare Fund v. Miramar Hotel Corp., 920 F.2d 1491, 1492 (9th Cir. 1990), in reaching its holding the Central States Court relied not on whether or not the plan was "multiemployer," but on the common law of trusts and the language of ERISA, 29 U.S.C. § 1104(a)(1)(A). See Central States, 472 U.S. at 570-72. Thus, the logic of Central States is applicable to this case, regardless of whether the plan at issue was multiemployer or not. Cf. Chambers v. Kaleidoscope, Inc. Profit Sharing Plan and Trust, 650 F. Supp. 359, 377 (N.D. Ga. 1986) (finding single-employer plan administrators breached fiduciary duties by "failing to protect . . . plan assets or to ensure that the plan received the money contributed by the company").

 II. The Duty to Reasonably Investigate Alternatives for Recovering Overdue Contributions

 The first dispute as to the reasonableness of Winterton's actions relates to whether Winterton had sufficient knowledge in deciding not to seek collection from Baldan. The plaintiffs argue that Winterton's reliance on Baldan's representations that he was insolvent was unreasonable because, had Winterton undertaken an investigation, he would have found ample evidence that Baldan was capable of making payments to the Plan. Winterton responds, of course, that it was reasonable for him to rely on that representation and that the fact that the plaintiffs have never been able to recover the delinquent contributions from Baldan shows the soundness of his appraisal of Baldan's insolvency.

 While the Central States Court did not reach the issue of whether a trustee had the fiduciary duty to investigate the amenability to suit of a delinquent employer, such an obligation might fairly be read into the decision. For example, the Court noted that "the Act also requires that a benefit plan prevent participant employers from gaining even temporary use of assets to which the plan is entitled [. . .,] a requirement that would certainly create a trustee responsibility for assuring full and prompt collection of contributions owed to a plan." Central States, 472 U.S. at 572-73 (citation & footnote omitted). The Court also noted the trustee's fiduciary duty "to gain ...


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