Trs. of the Sheet Metal Workers' Nat'l Pension Fund v. Steel & Duct Fabrication, Inc.

124 F.Supp.3d 187

TRUSTEES OF THE SHEET METAL WORKERS' NATIONAL PENSION FUND, Trustees of the National Energy Management Institute Committee for the Sheet Metal and Air Conditioning Industry, Trustees of the Sheet Metal Occupational Health Institute Trust, Trustees of the International Training Institute for the Sheet Metal and Air Conditioning Industry, and The Trustees of the National Stabilization Agreement of the Sheet Metal Industry Fund, Plaintiffs,

v.STEEL & DUCT FABRICATION, INC., and James Mikhail, as an individual, Defendants.

No. 14 Civ. 5503(KAM)(SMG).

United States District Court, E.D. New York.

Signed Aug. 18, 2015.

Jeffrey S. Dubin, Amy E. Lucas–Strang, Jeffrey S. Dubin P.C., Huntington, NY, for Plaintiffs.

Austin R. Graff, The Scher Law Firm, LLP, Carle Place, NY, for Defendants.

ORDER

MATSUMOTO, District Judge.

On September 19, 2014, plaintiffs Trustees of the Sheet Metal Workers' National Pension Fund, Trustees of the National Energy Management Institute Committee for the Sheet Metal and Air Conditioning Industry, Trustees of the Sheet Metal Occupational Health Institute Trust, Trustees of the International Training Institute for the Sheet Metal and Air Conditioning Industry, and Trustees of the National Stabilization Agreement of the Sheet Metal Industry Fund (collectively, "plaintiffs" or "Trustees") commenced this action against defendants Steel & Duct Fabrication, Inc. (the "Corporate defendant") and James Mikhail (collectively, "defendants") pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. §§ 1001 et seq., seeking an audit of defendants' books and records as well as payment of delinquent fringe benefit contributions, interest, liquidated damages, attorneys' fees and costs owed by defendants under the Collective Bargaining Agreements for the years 2005 to 2014 ("CBAs") and related Agreements and Declarations of Trust ("Trust Agreements"). Plaintiffs allege that defendants have failed and refused to pay plaintiffs the amounts owed in violation of the relevant CBAs and Trust Agreements, and that "[p]laintiffs are wholly ignorant of the amounts of money held by defendants except that defendants have failed and refused to account to plaintiffs also in violation of the terms of the CBAs and Trust Agreements, and Section 515 of ERISA, 29 U.S.C. § 1145." (ECF No. 12, Amended Complaint ("Amend. Compl.") ¶¶ 29–39.)

Currently pending is plaintiffs' discovery demand that defendants make available for an audit their books and records in order to determine the amount of contributions owed to the plaintiffs, on behalf of their participants, for the period January 1, 2008 through April 30, 2014, pursuant to 29 U.S.C. §§ 1132(g), 1145. For the following reasons, plaintiffs' request is granted.

BACKGROUND

Plaintiffs are the trustees of five multi-employer benefit plans: (1) Sheet Metal Workers' National Pension Fund; (2) National Energy Management Institute Committee for the Sheet Metal and Air Conditioning Industry; (3) Sheet Metal Occupational Health Institute Trust; (4) International Training Institute for the Sheet Metal and Air Conditioning Industry; and (5) National Stabilization Agreement of the Sheet Metal Industry Fund (collectively, the "Benefit Funds"). (Amend. Compl. ¶ 1.) The Corporate defendant, Steel & Duct Fabrication, Inc., is an employer within the meaning of Section 3(5) of ERISA, 29 U.S.C. § 1002(5), that entered into collective bargaining agreements with the Sheet Metal Workers' International Association Local Union No. 28 ("Local Union No. 28") for the period August 1, 2005 to July 31, 2014, to which plaintiffs are third-party beneficiaries. (Amend. Compl. at 4.) Defendant James Mikhail is a principal owner of the Corporate defendant and exercises control over the activities and operations of the Corporate defendant. (Amend. Compl. ¶¶ 17–18.)

Pursuant to the CBAs, defendants are required to make contributions to the Benefit Funds on behalf of all "employees engaged in the manufacture, fabrication, assembly, erection, installation, dismantling, reconditioning, adjustment, alteration, repairing and servicing of all sheet metal work or any and all substitute material on the job sites within the City of New York." (Plaintiffs' Opening Letter, dated March 25, 2015 ("Pls. Ltr.") Exs. B–D, Art. I, Sect. 1.)

On September 19, 2014, plaintiffs commenced this action against defendants alleging breaches of fiduciary obligations in violation of Section 515 of the ERISA, 29 U.S.C. §§ 1132 et seq.,1145, and the governing CBAs and Trust Agreements. (ECF No. 1, Complaint ("Compl.")) Upon consent, plaintiffs amended their complaint on November 24, 2014. (ECF No. 12, Amend. Compl.; ECF No. 13, 11/26/14 Minute Entry.) Specifically, plaintiffs contend that the Corporate defendant "has failed and refused and continues to refuse to pay the amounts owed to said plaintiff[s] in breach of the terms of the Agreement and Declaration of Trust" and under ERISA. (Amend. Compl. ¶¶ 30–39.) Plaintiffs also claim that defendants have refused to allow plaintiffs to "audit such books and records to determine the amount of contributions owed to the Benefit Funds on behalf of its participants for the period of January 1, 2008 through April 30, 2014." (Amend. Compl. ¶ 27.) Plaintiffs allege that "[n]otwithstanding such demands defendants have failed and refused to furnish to the plaintiffs said information and reports and to make available by audit all books and records of all defendants' ‘trades and businesses (whether or not incorporated) which are under common control’ of the defendants." (Amend. Compl. ¶ 28.) Plaintiffs demand that the defendants "furnish to the [plaintiffs] by audit, such books and records that will enable the employee benefit plans to determine the amount of contributions owed to said plans on behalf of participants of the plans employed by the defendants." (Amend. Compl. ¶¶ 46–51.)

The parties commenced discovery in November 2014 under the supervision of Chief Magistrate Judge Steven M. Gold. On February 2, 2015, at the direction of Judge Gold, the parties filed a joint status report indicating that the parties were unable to continue discovery without court intervention because defendants refused to permit an audit for the requested time period, January 1, 2008 through April 30, 2014, stating that plaintiffs had previously conducted prior audits for some portion of this time period. (ECF No. 16, 2/2/15 Joint Status Report.) After a pre-motion conference before this court, the court directed the parties to submit letter motions indicating their respective positions regarding the audit. Both parties submitted their letter briefs on March 25, 2015, and submitted replies on March 31, 2015 and April 1, 2015. (ECF Nos. 22, "Pls. Ltr.", 23, Defendants' Opening Letter dated March 25, 2015 ("Defs. Ltr."), 24, Plaintiffs' Reply Letter dated April 1, 2015 ("Pls. Reply"), 25, Defendants' Reply Letter dated March 31, 2015 ("Defs. Reply").)

DISCUSSION

A. The Parties' Arguments

Plaintiffs seek an Order requiring defendants to comply with the CBAs, Trust Agreements, and ERISA by furnishing for a "directed" audit defendant-employers' books and records for the period January 1, 2008 through April 30, 2014. (Amend. Compl. at 26–29; Pls. Ltr. at 1.).¹ Plaintiffs have previously conducted two "random" audits of defendants' books and records for the periods January 1, 2008 through December 31, 2010 and January 1, 2011 through May 31, 2013. (Pls. Ltr. at 2.) In their letter dated March 31, 2015, defendants state that they have no objections to the audit of its records for the period June 1, 2013 through the present, as plaintiffs have not conducted an audit for this time period. (Defs. Reply Ltr. at 1.) Defendants, however, object to the second audit for the time periods for which plaintiffs have already conducted an audit—January 1, 2008 through May 31, 2013. (Id. )

First, defendants argue that the court lacks the authority to interpret the parties' collective bargaining agreement because the interpretation of the agreement is subject to arbitration. (Defs. Ltr. at 1–2.) Second, defendants argue that, even if the dispute were properly before this court, the CBAs and Trust Agreements only provide for a single audit, and not multiple audits, for the same time periods. (Id. at 2–5.) Moreover, defendants assert that as a result of the first audits conducted for the period January 1, 2008 through May 31, 2013, defendants owed and subsequently paid delinquent contributions. (Affidavit of James Mikhail in Support of Defendants' Motion to Preclude a Second Audit ("Mikhail Aff.") ¶ 5.)

Plaintiffs argue that the CBAs place no limit on the number of audits the Trustees may conduct. (Id. at 2–3.) Plaintiffs cite to language in the CBAs that "[t]he Trustees shall have the authority to have their auditor or an independent Certified Public Accountant audit the payroll and wage records of the Employer for the purpose of determining the accuracy of contributions made to the Pension Fund." (Id. at 2 (citing Pls. Ltr. Exs. B–D, Art. XII(B), Sect. 21(D)).) Plaintiffs also contend that the relevant Trust Agreements, which are incorporated by reference into the CBAs, and attached as Exhibits E, F, G, H, and I to their March 25, 2015 Letter, provide in sum and substance that the Trustees have the authority to conduct an audit at any time to verify or assure the accuracy of the Employer's compliance with the CBA and applicable laws. (See Pls. Ltr. Ex. E, Art. V, Sect. 3; Ex. F, Art. V, Sect. 6(c), Art. VII, Sect. 6; Ex. G, Art. V, Sect. 5(f), Art. VII, Sect. 6; Ex. H, Art. V, Sect. 5; Ex. I, Art. V, Sect. 6(c), Art. VII, Sect. 6.)

Plaintiffs contend that, although two "random" audits were conducted, they seek a "directed audit" "to look more closely into the books and records of the employer in order to ascertain if there is an ‘alter ego’ status." (Pls. Ltr. at 2; Declaration of Cari Greene ("Greene Decl.") ¶...