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Sysco Food Services of Metro New York, LLC v. Tramontana

November 19, 2007

RE: SYSCO FOOD SERVICES OF METRO NEW YORK, LLC
v.
TRAMONTANA, ET AL.



The opinion of the court was delivered by: William J. Martini, U.S.D.J.

LETTER OPINION

Dear Counsel:

This matter comes before the Court on a Motion to Dismiss filed by Defendants Local Union No. 863 IBT Pension Plan (the "Teamsters Fund" or "Fund"), Plan Administrator Gerrie Daniher and certain individual Plan Trustees.*fn1 For the reasons discussed below, the Motion to Dismiss is GRANTED.

Background and Procedural History

Plaintiff Sysco Food Services of Metro New York, LLC ("Sysco"), filed a three-count Complaint challenging its increased pension fund liability, which allegedly resulted from Defendants' conduct. The Fund is a multi-employer pension plan organized under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which is funded by contributions from employers, including Plaintiff, pursuant to the terms of collective bargaining agreements ("CBAs") between those employers and Local 863. (Compl. ¶ 14.) Contributions to the Fund are made based upon the hours worked by employees, at rates agreed upon in the CBAs. (Id.) Monies contributed and the investment earnings constitute the assets of the Fund and provide the source for benefits payable to fund beneficiaries, including retirees and their spouses. (Id.)

Plaintiff alleges that since at least 1996, the Fund Trustees knew or should have known that contributions from participating employers in the Teamsters Fund failed to finance both current and future liabilities at the benefit levels set by the Fund Trustees, which resulted in the Fund being underfunded. (Id. ¶ 17.) Plaintiff further alleges that in or after 1996, the Teamsters Fund improperly permitted certain participating employers both to withdraw from the Fund and to place new employees into different funds, thereby aggravating the underfunding of the Teamsters Fund. (Id. ¶ 18.)

Plaintiff alleges that on November 29, 2004, it requested that the Teamsters Fund provide it with certain information, including a complete copy of the Pension Fund Agreement, Declaration of Trust, and actuarial information concerning the financial health of the Fund, as well as the amount and description of any unfunded liabilities of the Fund. (Id. ¶ 19.) The Teamsters Fund responded on November 30, 2004 by providing an annual valuation of the Fund as of August 31, 2004, which revealed to Plaintiff for the first time that the fund was underfunded and that the amount of the underfunding exceeded $380,000,000. (Id. ¶ 20.) In light of this disclosure, on December 9, 2004, Plaintiff asked for certain financial information from the Fund, including information regarding Plaintiff's liabilities for deficiencies in the Fund and how close the Fund was to a "minimum funding deficiency," which would trigger certain disclosure requirements to the Internal Revenue Service. Plaintiff received no response to this request, and made the request again on February 7, 2005. (Id. ¶ 22.) On March 23, 2005, the Plan Administrator advised Plaintiff that the Fund Actuary had calculated its withdrawal liability to be $29,569,152.00 as of August 31, 2004. (Id. ¶ 23.) On May 13, 2005, the Fund's counsel advised Plaintiff that its withdrawal liability and share of unfunded liability had been calculated to be $19,658,752.00, and informed Plaintiff that the actuary had applied for a minimum funding waiver from the IRS. (Id. ¶ 24.) On or about January 23, 2006, the Fund acknowledged to Plaintiff for the first time that the Fund was severely underfunded. (Id. ¶ 25.) Plaintiff alleges that the Fund and the Union should have known about this underfunding for approximately ten years. (Id.) Plaintiff's liabilities to the Fund were now calculated to be in excess of $40 million. (Id.) Local 863 was also demanding a $6.00 per hour special assessment to alleviate the underfunding, and threatened to strike Plaintiff if the assessment was not paid. (Id.) Plaintiff alleges that in an effort to pressure Plaintiff to accept this demand, the Fund falsely represented that other contributing employers had agreed to the special assessment. (Id. ¶ 26.)

Based on the foregoing, Plaintiff alleges that beginning in 1996 and continuing through 2005, the Trustees and the Fund, through various acts and omissions, fraudulently concealed from Plaintiff that current and future benefits of the Teamsters Fund exceeded the assets of the Fund at current assessment levels, that the underfunding of the Teamsters Fund was worsening annually, that prior to 2006, the Teamsters Fund was in a dire financial condition, that, notwithstanding this dire financial condition, one or more participating employers had been permitted to withdraw from the Fund without paying the full amount of their withdrawal liabilities, including their proportionate share of any deficiencies in the Fund, and that certain other participating employers had been permitted to assign new employees to different funds, thereby depriving the Teamsters Fund of new revenue sources to cover the Fund's liabilities, all of which was intended to and did, in fact, cause Plaintiff to remain as a participating employer in the Teamsters Fund.

(Id. ¶ 28.) Plaintiff alleges violations of ERISA and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., as well as various state contract and tort claims. (Id. ¶¶ 32-45.) Because Plaintiff concedes that its RICO claim is directed solely at Local 863, that claim will be dismissed as to the moving Defendants. (Pl.'s Br. Opp. Mot. Dismiss ("Pl.'s Br.") 16, 17, 21.)

Plaintiff's ERISA claim alleges that the Fund, Trustees and Plan Administrator "fraudulently induced Plaintiff to remain an employer participant in the Teamsters Fund through a series of fraudulent misrepresentations and concealments that violated ERISA and established federal common law." (Compl. ¶ 33.) As a result, Plaintiff alleges it has been damaged "in an amount equal to the difference in the withdrawal liabilities it would have incurred if it had been given timely notice of the initial deficiencies in the Fund and the amount of its current liabilities for the accumulated deficiencies that have accrued to the Fund since that date," as well as any additional penalties it may be assessed by the IRS for failure to meet minimum funding requirements. (Id. ¶ 34.) Plaintiff also alleges that the actions of the Fund, Trustees and Plan Administrator constituted fraud, constructive fraud, negligent misrepresentation and/or conspiracy under state law, as well as gross negligence in the fiscal management of the Fund. (Id. ¶¶ 36-37.)

The Fund, Trustees and Plan Administrator have moved to dismiss the Complaint on various theories, including insufficiency under Federal Rules of Civil Procedure 9(b) and 12(b)(6). The moving Defendants also argue that Plaintiff's state law claims should be dismissed as preempted by ERISA. The Court held oral argument on the Motion to Dismiss on July 24, 2007. Subsequently, Plaintiff informed the Court that the IRS had denied the Fund's request for a waiver of its minimum funding deficiency, and the Court permitted a round of supplementary briefing on the effect of this development on the Complaint and the pending Motion to Dismiss. The Motion to Dismiss is now before the Court.

Discussion

I. Plaintiff's ERISA Claim

Because Plaintiff's ERISA claim sounds in fraud, it is subject to the pleading requirements of Rule 9(b). Rule 9(b) provides that "[i]n all averments of fraud . . . the circumstances constituting fraud . . . shall be stated with particularity." A plaintiff may satisfy this requirement by pleading the date, time or place of the fraud, or through "alternative means of injecting precision and some measure of substantiation into ...


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