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Laufenberg v. Northeast Carpenters Pension Fund

United States District Court, D. New Jersey

December 18, 2019



          Michael A. Hammer United States Magistrate Judge.


         This civil action concerns a dispute over Plaintiff George R. Laufenberg's collection of retirement benefits during his tenure as the Plan Administrator for the Northeast Carpenters Pension Fund, Northeast Carpenters Annuity Fund, Northeast Carpenters Health Fund, and Northeast Carpenters Apprentice Fund (“Benefit Fund Defendants”). Following his termination, Plaintiff filed this action to recover certain sums that the Boards of Trustees (“Trustee Defendants”) have allegedly withheld from him based on their belief that Plaintiff engaged in self-dealings in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. This matter now comes before the Court on Defendants' Motion for Judgment on the Pleadings pursuant to Federal Rule of Civil Procedure 12(c). Specifically, Defendants seek the dismissal of the Third Amended Complaint and the entry of partial judgment in their favor on their First Counterclaim. For the reasons that follow, Defendants' motion is granted in part and denied in part.


         1. Plaintiff's Employment [1]

         The Benefit Fund Defendants are Taft-Harley multiemployer employee benefit plans within the meaning of the ERISA. See Third Am. Compl. ¶ 3, D.E. 145; Answer to Third Am. Compl. with Affirmative Defenses and Am. Countercls. (“Answer & Countercls.”), ¶ 14, D.E. 146. The Trustee Defendants are responsible for the management and administration of each Fund's assets. See Answer & Countercls. ¶ 163. “The collective purpose of the Benefit Funds is to provide retirement benefits and various fringe benefits to eligible employees on whose behalf employers contribute to the Benefit Funds, pursuant to collective bargaining agreements between certain employers in the construction industry and the Northeast Carpenters Union.” Third Am. Compl. ¶ 14; see also Answer & Countercls. ¶ 14.

         Plaintiff served as the Plan Administrator for the funds from 1984 until his termination in December 2016. Third Am. Compl. ¶¶ 5; Answer & Countercls. ¶ 5. In 1984, the Trustees of the New Jersey Carpenters Benefit Funds-the predecessor to the Benefit Fund Defendants- “delegated to Plaintiff the responsibility for and authority over the day-to-day administration of the Benefit Funds.” Answer & Countercls. ¶ 164. Following a merger effective January 1, 2016 between the New Jersey Carpenter Benefit Funds and the Empire State Carpenters Funds, Plaintiff assumed the role of Plan Administrator for the Benefit Fund Defendants. See id. ¶ 165; Third Am. Compl. ¶ 9.

         Plaintiff's employment was governed by successive contracts entered into in 1985, 1990, 1993, and 1998 with the Trustees of the New Jersey Pension Fund. Third Am. Compl. ¶ 6; Answer & Countercls. ¶ 168. The 1998 contract, titled “Employment and Deferred Compensation Agreement” (“Employment Contract”), confirmed Plaintiff's employment until December 2005, at which time the agreement would automatically be renewed for additional five-year terms absent written notice.[2] Answer & Countercls., Ex. A., D.E. 146-1 at 14, 20. The parties renewed the Employment Contract in 2015. See Third Am. Compl. ¶¶ 52-54. Following the merger, Plaintiff became an employee of the Northeast Health Fund. Answer & Countercls. ¶ 176.

         The Employment Contract provided Plaintiff an annual salary of $286, 845.00 at the time of his termination; a “Base Pension” of approximately $10, 000 per month along with additional benefits pursuant to his participation in the benefit plans; and a separate retirement benefit (“Deferred Pension Supplement”) of approximately $14, 000 per month. See id., D.E. 146-1 at 14-15; Third Am. Compl. ¶¶ 4-13, 53-58. Paragraph Three of the Employment Contract prescribes the parties' rights and obligations pertaining to the benefit funds:

In addition to his cash compensation, contributions shall continue to be made by the Trustees on the Employee's behalf to such employee benefit funds . . . as are presently in effect together with any increases in contribution amounts as may be mutually agreed upon and/or as may be required to maintain the same level of benefits as presently in effect or as may be required by other agreements governing such contributions. The Employee shall be entitled to all benefits provided by such employee benefit funds and there shall be no reduction of any such benefits because of any benefit provided for, or received under this Agreement except in the amount and manner as specifically provided herein for the offset of such benefits against the retirement benefits provided under this Agreement.[3]

Answer & Countercls., Ex. A., D.E. 146-1 at 15.

         The New Jersey Carpenters Pension Plan, effective January 1, 2014, set forth the requirements to retire on a pension prior to the merger. See Answer & Countercls., Ex. I., D.E. 146-9 at 19-20. Article III prescribed that a qualifying employee “shall be eligible to retire on a [Base Pension] commencing on the first day of the month following his last Hour of Service” provided that:

(a) he files with the Trustees, on or before the first day of the month of the first pension payment applied for, an application for retirement on a form provided by the Trustees;
(b) he submits to the Trustees proof satisfactory to the Trustees of his date of birth and, if married, his Spouse's date of birth and their marriage; and
(c) he ceases all work in the Industry.

Id., D.E. 146-9 at 19. Article III further provided that “[a] Pensioner shall receive pension payments monthly beginning on the first day of the month coinciding with or next following the date that he fully meets the requirements set forth in this Article.” Id. at 19. With respect to the operation, administration, and interpretation of the plan, Article XII granted the Trustees the authority “to designate an administrative manager for such purposes.” Id., D.E. 146-9 at 54.

         Following the merger, the Northeast Carpenters Pension Plan prescribes that “[a] Participant may Retire on a [Base Pension] on or after January 1, 2016 with respect to his Pre-January 1, 2016 Accrued Benefit and any Post-January 1, 2016 Accrued Benefit if the Participant has attained Normal Retirement Age.” Answer & Countercls., Ex. I-2, D.E. 146-10 at 19. It further provides that “[n]o pension shall be granted unless a properly completed application is made in writing and received by the Trustees.” Id., D.E. 146-10 at 43.

         Plaintiff is also entitled to receive benefits from the Northeast Carpenters Annuity Fund (“Annuity Fund”).[4] See Third Am. Compl. ¶¶ 9-11. The Annuity Fund “is a defined contribution plan that provides retirement, deferred compensation, disability retirement, and termination of employment benefits to participants and beneficiaries . . . .” Answer & Countercls. ¶ 11. Employers are required to make contributions to the Annuity Fund on behalf of participants, which are credited to the participant's individual account and become payable upon retirement or the occurrence of certain triggering events. See Answer & Countercls., Ex. I-3, D.E. 146-11 at 40-42. Employer contributions to the Annuity Fund are tied to the participant's income; however, both the Annuity Plan and Section 401(a)(17) of the Internal Revenue Code cap the annual compensation to be considered for contributions at $265, 000 plus cost-of-living adjustments. See id., D.E. 146-11 at 36-37; 26 U.S.C. § 401(a)(17). A participant in the Annuity Plan is eligible for benefits upon, inter alia, certification that he or she has attained the age of fifty-five and “ceased all work in the Industry.” See id., D.E. 146-11 at 43. With respect to the employer contributions attributed to a participant's account, the Annuity Plan prescribes that “[a] Participant is fully and immediately 100% vested in the value of his or her Account.” Id., D.E. 146-11 at 42.

         Paragraph 4 of the Employment Contract governs the Deferred Pension Supplement:

A. If the Employee continues in the employ of the Trustees until the retirement age as herein defined, the Trustees shall provide the Employee with a retirement benefit calculated and determined as follows and subject to the following rules:
i. a monthly benefit, commencing on the first day of the month following retirement, in an amount equal to:
[] 4% of his average monthly compensation received during the three consecutive years of employment at his highest compensation multiplied by his years (and fraction thereof) of employment by the Trustees since March 1, 1984, less the portion of his monthly pension received from the New Jersey Carpenters Pension Fund attributable to years of service under the rules of such Pension Fund after March 1, 1984.
ii. “Retirement Age” as used herein shall mean the then current normal retirement age as provided in the Pension Plan of the New Jersey Carpenters Pension Fund.
iii. There shall be no compulsory retirement under this Agreement except as may be required by applicable federal law.
B. If at any time during the term of Employee's employment by the Trustees, his employment is severed, regardless of cause of such severance, the Employee may elect to receive the retirement benefit as hereinabove provided, either as a monthly benefit or as a lump sum payment. . . .

Id., D.E. 146-1 at 15-16. On March 17, 2005, the Trustee Defendants amended the Employment Contract to allow Plaintiff's Deferred Pension Supplement “to accrue up to one hundred percent (100%) of his annual salary at a rate of four percent (4%) per year.” Id., D.E. 146-1 at 21.

         2. Plaintiff's Allegations

         Plaintiff alleges that, on December 20, 2016, Defendants “confronted the Plaintiff and accused him of self-dealing.” Third Am. Compl. ¶¶ 22-26. Specifically, Defendants questioned Plaintiff about whether he had been collecting his Base Pension and Deferred Pension Supplement since October 2015. Id. ¶ 23. “Plaintiff responded that as and because he was then sixty-five . . . years old, he commenced collection of his pension, to which he believed he was entitled and also continued working.” Id. According to Plaintiff, the Benefit Funds' accountant addressed whether Plaintiff could collect his pension at the September 2015 Board of Trustees meeting. Id. ¶ 27. Plaintiff avers that he only proceeded to collect his pension upon receiving no response from the Benefit Funds attorney. Id. ¶ 28. Plaintiff also stated that “since 2001 he was in receipt of, on a quarterly basis, cash in lieu of his annuity contribution for which taxes were paid.” Id. ¶ 25.

         Defendants demanded Plaintiff refund the pension and annuity payments. Id. ¶¶ 24, 26. Plaintiff requested that Trustee Defendants set forth their proposed resolution of the dispute in writing. Id. ¶ 30. The Trustee Defendants responded with an “ultimatum” on December 21, 2016: Plaintiff was to retire on December 29, 2016 or be terminated. Id. ¶ 31. According to Plaintiff, acceptance of the ultimatum would have resulted in the forfeiture of over $1, 000, 000 in compensation owed under the Employment Contract. Id. ¶ 32. Plaintiff avers that he never received an adequate explanation of the purported self-dealing and submits that “it is now clear that a deliberate pre-judgment had been reached.” Id. ¶¶ 46-47. In Plaintiff's view, he “responded without reservation [to the allegations] and with full clarity about the proper exercise of his rights . . . .” Id. ¶ 47. Consequently, Plaintiff declined to retire. Id. ¶ 33.

         On December 22, 2016, the Trustee Defendants' attorney directed Plaintiff “to clear out his office that night . . . and not return.” Id. ¶ 36. Since that date, Defendants have withheld various forms of compensation owed to Plaintiff. Specifically, Defendants froze payment of Plaintiff's Deferred Pension Supplement, “denied [him] access to his annuity account under the New Jersey Carpenters' Annuity Plan, ” and denied him continued payment of his salary and other benefits owed under the Employment Contract.[5] Id. ¶¶ 38-40; see also Id. ¶¶ 52-55, 57-59.

         Plaintiff submits that he has satisfied all administrative requirements to receive his retirement benefits, “and such action has been confirmed in writing by the Funds['] attorney.”[6] Id. ¶ 56; see also Id. ¶ 81. Notwithstanding his applications for benefits, Defendants have ignored the relevant claims procedures “by admitting that [Plaintiff] was entitled to his benefits and illegally withholding same for which there is no provision under ERISA which allows the [Trustee Defendants] to withhold the benefits.” Id. ¶ 78. In sum, Plaintiff asserts that the Trustee Defendants' accusations and denial of benefits were fraudulent, malicious, and illegal. Id. ¶¶ 48, 58-59, 97, 121. Plaintiff calculates his losses to exceed $1, 900, 000. Id. ¶ 59.

         3. Defendants' Allegations

         Defendants tell a very different story. They submit that Plaintiff admitted at the December 20, 2016 meeting that he “unilaterally concluded that he was entitled to begin collecting his Base Pension” upon turning sixty-five and “used his authority as Administrator to cause the [Benefit Fund Defendants] to begin the distribution of his Base Pension in October 2015, without seeking or obtaining the approval of the Board of Trustees.” Answer & Countercls. ¶ 23. Defendants allege that that the distribution of the Base Pension prior to Plaintiff's retirement violated the express terms of the New Jersey Carpenters and Northeast Carpenters Pension Plans. See Id. ¶¶ 4, 177-78. With respect to the Deferred Pension Supplement, Defendants aver that “Plaintiff also admitted . . . that he unilaterally construed his Employment Agreements to entitle him to [the Deferred] Pension Supplement in the amount of $14, 729 per month[] and used his authority as Administrator to cause the [Benefit Fund Defendants] to begin the distribution of the Pension Supplement on October 1, 2015.” Id. ¶ 23; see also Id. ¶¶ 179-80. Finally, Defendants allege that

Plaintiff also admitted . . . that for many years, he used his authority as Administrator . . . to unilaterally increase his monthly pay by the amount of contributions that should have been made by the N.J. Pension Fund to the N.J. Annuity Fund on his behalf under his Employment Agreements plus an amount equal to the amount of contributions that would not have been made to the Annuity Fund because of the cap imposed by Section 401(a)(17) of the Internal Revenue Code.

Id. ¶ 23; see also Id. ¶ 181-82.

         By way of the “ultimatum” dated December 21, 2019, Defendants informed Plaintiff that the aforementioned self-dealing violated ERISA, the terms and conditions set forth in the Employment Contract, and the terms of relevant benefit plans. See Id. ¶¶ 31, 177-82; Ex. B, D.E. 146-2. Defendants submit that “the Trustee Defendants had the right to terminate Plaintiff's employment with or without cause, at any time, and were required as fiduciaries to terminate Plaintiff's employment once Plaintiff admitted to the self-dealing transactions . . . .” Id. ¶ 32.

         After terminating Plaintiff for cause, the Trustee Defendants approved the distribution of his Base Pension “but without waiver of [their] right to a set-off against Plaintiff's Base Pension equal to the amount of Base Pension payments that Plaintiff impermissibly received from October 2015 to December 2016.” Id. ¶ 4. Conversely, “the Board of Trustees suspended the payment of the [Deferred] Pension Supplement effective December 20, 2016, in light of Plaintiff's admissions of self-dealing transactions . . . and pending further review of the enforceability of the Employment Agreements and the legality of the Pension Supplement, as well as this Court's approval of a set off against the Pension Supplement.” Id. ¶ 38. With respect to the annuity account, the Trustee Defendants suspended the distribution of payments pending Plaintiff's repayment of his excessive payments pursuant to Section 206(d)(4) of ERISA. Id. ¶ 39.

         The Trustee Defendants also retained a forensic accountant to further investigate Plaintiff's suspected self-dealings. Id. ¶ 183. Following the investigation, Defendants determined that Plaintiff collected unauthorized automobile bonuses, holiday bonuses, and other non-specific bonuses; extended pensions and benefits coverage to unqualified persons; and retained an Apprentice Fund master cabinetmaker to construct two dining room tables for his home without Trustee approval. See Id. ¶¶ 185-215.

         Defendants also contest the validity of the Employment Contract and Deferred Pension Supplement. See Id. ¶¶ 170-76. Defendants assert “Plaintiff knowingly and intentionally failed to disclose the existence of the 1998 Agreement” during the 2016 merger negotiations between the New Jersey Carpenters Funds and the Empire State Carpenters Funds. Id. ¶ 176. Defendants thus contend that

[t]he Northeast Health Fund Trustees failed to assume or agree to the [Employment Contract] . . . nor did the Merger Agreement . . . require the Northeast Pension Fund [to] assume and become bound by the Pension Supplement provisions in the 1998 Agreement, as amended by the 2005 Amendment.

Id. In regard to the Deferred Pension Supplement, Defendants submit “Plaintiff requested and regularly received reports from the actuary for the New Jersey Pension Benefit Fund disclosing the value of his Pension Supplement and the financial impact on his Pension Supplement of an increase in his salary.” Id. ¶ 170. According to Defendants, Plaintiff had an obligation to disclose the financial terms of his employment to the Trustee Defendants whenever he requested or negotiated an increase in salary, but consistently failed to do so. See Id. ¶¶ 171-74. Defendants aver that “Plaintiff's concealment [of those details] caused the Trustees to ...

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