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Agathos v. Starlite Motel

filed: March 31, 1995.

JOHN AGATHOS; AND LEONARD DEMARSICO, AS TRUSTEES OF THE LOCAL 4-69 WELFARE FUND AND THE LOCAL 4-69 PENSION FUND AND LOCAL 69, HOTEL EMPLOYEES AND RESTAURANT EMPLOYEES INTERNATIONAL UNION, BY ITS PRESIDENT, JOHN AGATHOS APPELLANTS
v.
STARLITE MOTEL



On Appeal from the United States District Court for the District of New Jersey. (D.C. No. 89-cv-02429).

Before: Stapleton and Cowen, Circuit Judges Huyett, District Judge*fn*

Author: Cowen

Opinion OF THE COURT

Cowen, Circuit Judge :

John Agathos and Leonard DeMarsico, plaintiff trustees (the "Trustees") of the jointly administered Local 4-69 Welfare Fund (the "Welfare Fund") and the Local 4-69 Pension Fund (the "Pension Fund") appeal from an order of the district court that granted judgment in favor of defendant Starlite Motel ("Starlite") on claims under a collective bargaining agreement.*fn1 In essence, the Trustees argue that the district court erred in: (1) determining that the Welfare Fund was not legally entitled to recover benefits paid to an ineligible employee in reliance on false statements made by Starlite; (2) concluding that only current Starlite employees could have colorable claims against the Pension Fund for benefits; (3) concluding that two current employees do not have colorable claims for pension benefits; and (4) concluding that a one year time limit for filing precludes claims for welfare benefits. Because the district court correctly determined that the Welfare Fund was not entitled to recover benefits paid to the ineligible employee, we will affirm the district court's order in part. Nevertheless, because we conclude that the district court failed to make factual findings and Conclusions of law sufficient to determine whether the past and present employees of Starlite have colorable claims for pension and welfare benefits, we will reverse and remand on the remaining issues raised by the Trustees.

I.

The Local 4-69 Welfare Fund and the Local 4-69 Pension Fund (collectively "the Funds") are multiemployer employee benefit plans that were established in accordance with Section 302(c)(5) of the Labor-Management Relations Act of 1947 (as amended), and that are within the purview of the Employee Retirement Income Security Act of 1974 (as amended) ("ERISA"). Pursuant to ERISA and the Labor-Management Relations Act, contributions that employers owe under collective bargaining agreements are pooled to provide the benefits for all the participants and beneficiaries of the Funds.

On May 31, 1979, Starlite entered into a collective bargaining agreement that required it to make contributions to the Welfare and Pension Funds on behalf of its employees. Zuzanna Podkowa ("Podkowa") was an employee of Starlite until June 30, 1986. At that time, she terminated her employment. After leaving Starlite, Podkowa submitted medical claims to the Welfare Fund even though she was no longer eligible for such benefits. The Welfare Fund paid her $11,203.67 in benefits relying on a false report from Starlite that Podkowa was still employed.

Because of information disclosed as the result of Podkowa's claim, the Funds sought an audit of Starlite's books. Starlite refused the audit and the Funds sued. An audit of Starlite's records covering the period from January 1, 1984 to December 31, 1990 conducted during discovery demonstrated that Starlite failed to report a number of employees who were covered by the collective bargaining agreement. In addition, Starlite failed to make contributions to the Funds on behalf of these employees. The contributions due from Starlite totalled $52,665.00 for the Welfare Fund and $14,756.00 for the Pension Fund.

Without taking further evidence, the district court heard legal arguments on the above stipulated facts. The court concluded that the payments made to Podkowa were made as a result of the failure of the Funds to conduct even the most minimal policing of Starlite's account, and denied recovery. Agathos v. Starlite Motel, No. 89-2429, slip op. at 11 (D.N.J. Dec. 20, 1991). Concerning the unreported employees, the district court concluded that the Funds suffered no damages because the unreported employees were never covered by the Funds and thus could not have made any claims for pension or welfare benefits. Id. at 8-9. An appeal to this Court followed.

On appeal, we vacated the district court's judgment and remanded for further proceedings. Agathos v. Starlite Motel, 977 F.2d 1500, 1510 (3d Cir. 1992). We determined that the district court failed to make clear the precise legal principles it considered in reaching its decision concerning the benefits paid to Podkowa. Id. at 1508. Accordingly, we remanded to the district court for it to decide whether the Funds could meet their burden of proving either fraud or breach of contract on the part of Starlite. Id.

With respect to the claims for Welfare and Pension Fund contribution, we determined that we were unable to discern from the record which employees, if any, presently could bring a valid claim for benefits. Id. at 1507. We explained that if the employees cannot assert such claims, then a judgment for the Funds would compel Starlite to contribute to plans from which its employees obtained no benefits in the past and are powerless to derive any benefits in the future, a result that we described as a "pure windfall." Id. We therefore directed the district court to conduct an evidentiary hearing to determine which, if any, unreported employees currently have colorable claims against the Funds for benefits. Id. Further, we explicitly placed the burden of proof on Starlite to demonstrate that particular employees no longer had colorable claims for benefits if Starlite wished to avoid making contributions on behalf of those employees. Id. at 1507-08.

The district court on remand held an evidentiary hearing. At the hearing, the Trustees of the Welfare Fund admitted into evidence a written document attesting to the fact that on December 2, 1992 (after our first decision in this matter), the Trustees unanimously adopted a resolution to waive the time limits on submission of medical claims to the Welfare Fund for individuals for whom contributions should have been made by Starlite. According to the Trustees, this waiver allows each of these employees to submit claims for welfare benefits without regard to any previously imposed time bar.

The district court rendered its decision following this hearing in a three page order. The court determined that the Funds had not met their burden of proof in proving fraud or breach of contract with regard to their claim for monies paid to Podkowa. According to the court, the Funds had not proven that they "were justified in relying" on Starlite's misrepresentation to their detriment and the Funds had not proven that the damages they sought flowed foreseeably from Starlite's breach. Agathos v. Starlite Motel, No. 89-2429, slip op. at 3 ...


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