Gregory Bos v. Board of Trustees , 795 F.3d 1006 ( 2015 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
GREGORY BOS, No. 13-15604
Appellant,
D.C. No.
v. 2:12-cv-02026-
MCE
BOARD OF TRUSTEES, in their
capacities as Trustees of the
Carpenters Health and Welfare Fund OPINION
of California; Carpenters Vacation-
Holiday Trust Fund for Northern
California; Carpenters Pension Trust
Fund for Northern California;
Carpenters Annuity Trust for
Northern California; Carpenters
Training Trust Fund for Northern
California; Northern California
Carpenters Regional Council,
Appellee.
Appeal from the United States District Court
for the Eastern District of California
Morrison C. England, Jr., Chief District Judge, Presiding
Argued and Submitted
May 14, 2015—San Francisco, California
Filed July 30, 2015
2 BOS V. BOARD OF TRUSTEES
Before: Diarmuid F. O’Scannlain and Sandra S. Ikuta,
Circuit Judges and Larry A. Burns,* District Judge.
Opinion by Judge O’Scannlain
SUMMARY**
Bankruptcy
Reversing the district court’s judgment affirming the
bankruptcy court, the panel held that a debt was not
nondischargeable as a debt incurred due to the Chapter 7
debtor’s fraud or defalcation while acting in a fiduciary
capacity.
Agreeing with the Sixth and Tenth Circuits, the panel held
that the debtor was not a “fiduciary” under 11 U.S.C.
§ 523(a)(4) when he failed to make contractually required
contributions to an employee benefits trust governed by the
Employee Retirement Income Security Act. The panel
declined to recognize an exception to the rule that unpaid
contributions by employers to employee benefit plans are not
plan assets, even though other courts had recognized an
exception when the plan document expressly defines the fund
to include future payments.
*
The Honorable Larry A. Burns, District Judge for the U.S. District
Court for the Southern District of California, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
BOS V. BOARD OF TRUSTEES 3
The panel reversed with instructions to remand to the
bankruptcy court with instructions to discharge the debt.
COUNSEL
Kristen Ditlevsen Renfro, Desmond, Nolan, Livaich &
Cunningham, Sacramento, California, argued the cause and,
along with J. Russell Cunningham, J. Luke Hendrix, and
Gabriel P. Herrera, filed the briefs for appellant.
Tracy L. Mainguy, Weinberg, Roger & Rosenfeld, Alameda,
California, argued the cause, and Christian L. Raisner, Emily
P. Rich, Jordan D. Mazur, and Jolene E. Kramer filed the
brief for the appellees.
OPINION
O’SCANNLAIN, Circuit Judge:
We must decide whether an employer’s contractual
requirement to contribute to an employee benefits trust fund
makes it a fiduciary of unpaid contributions.
I
Beginning in 2007, Gregory Bos was owner and president
of Bos Enterprises, Inc. (“BEI”). BEI was a member of the
Modular Installers Association, an employer association. As
president of BEI, Bos agreed that BEI would be bound by the
Carpenters’ Master Agreement, and several trust agreements.
The Carpenters’ Master Agreement required each
employer—including BEI—to contribute monthly payments
4 BOS V. BOARD OF TRUSTEES
based on hours of work to the trust funds (the “Funds”)1 for
the purpose of providing employee benefits. Each trust
agreement defined its respective fund as including “all
contributions required by the [Carpenters’ Master Agreement]
. . . to be made for the establishment and maintenance of the
[respective plan], and all interest, income and other returns of
any kind.” With the exception of the Health and Welfare
Fund Agreement, the trust agreements defined each fund to
include, as well, any other money received or held because of
or pursuant to the trust.
Neither party disputes that Bos personally had full control
over BEI’s finances, as well as authority to make payments
on behalf of BEI, whether to the Funds or to other creditors.
Thus, Bos was personally responsible for making the required
contributions to the Funds on behalf of BEI. In any event, he
struggled to make the payments required by the Carpenters’
Master Agreement. On March 9, 2009, Bos signed a
promissory note personally guaranteeing payment to the
Funds of $359,592.09—the amount he had failed to pay from
August 2008 through January 2009. Although he made one
payment in April 2009 of $30,824.99, he otherwise failed to
meet the payment obligations required by the promissory
note.
The Board of Trustees (“the Board”)—charged with
administering the Funds—subsequently filed a grievance
against Bos and BEI to recover the outstanding amount owed
to the Funds under the Carpenters’ Master Agreement. An
1
Specifically, each employer was required to contribute to five trust
funds—the Health and Welfare Fund, the Pension Fund, the Vacation and
Holiday Fund, the Training Fund, and the Annuity Fund.
BOS V. BOARD OF TRUSTEES 5
arbitrator granted the Board an award of $504,282.59 against
Bos, individually and as doing business as BEI, and BEI.
On February 28, 2011, Bos and his spouse filed a joint
petition for Chapter 7 bankruptcy. On May 27, 2011, the
Board filed a complaint against Bos and his spouse contesting
the dischargeability of the $504,282.59 debt. The Board
subsequently amended its complaint so as to dismiss Bos’s
spouse.
On July 12, 2012, the bankruptcy court entered judgment,
concluding that Bos had committed defalcation while acting
as a fiduciary of the Funds and that the $504,282.59 debt to
the Funds was therefore nondischargeable.2 On March 8,
2013, the district court affirmed the bankruptcy court on the
same grounds, and on March 12, 2013, the district court
entered an order to that effect. Bos timely appealed.3
II
Bos argues that the bankruptcy court and district court
erred in concluding that he was a “fiduciary” under 11 U.S.C.
§ 523(a)(4).
2
Specifically, the bankruptcy court found that Bos’s debt fell under
11 U.S.C. § 523(a)(4), which provides that debts incurred by a debtor due
to the debtor’s “fraud or defalcation while acting in a fiduciary capacity”
are nondischargeable in Chapter 7 bankruptcy proceedings. The
bankruptcy court also found, however, that Bos’s debt did not fall under
either 11 U.S.C. § 523(a)(2) or (a)(6), which deem nondischargeable those
debts incurred through the debtor’s fraud or willful and malicious injury.
On appeal, the parties do not challenge the 11 U.S.C. § 523(a)(2) or (a)(6)
determinations.
3
We have jurisdiction pursuant to 28 U.S.C. § 1291.
6 BOS V. BOARD OF TRUSTEES
A
Section 523(a)(4) of the Bankruptcy Code provides that
Chapter 7 debtors may not discharge debts incurred due to the
debtor’s “fraud or defalcation while acting in a fiduciary
capacity, embezzlement, or larceny.” 11 U.S.C. § 523(a)(4).
For a debt to be held nondischargeable under § 523(a)(4)’s
defalcation provision, the debtor must have been a fiduciary
prior to his commission of the fraud or defalcation. See
Blyler v. Hemmeter (In re Hemmeter), 242 F.3d 1186, 1190
(9th Cir. 2001). In other words, the act of wrongdoing that
created the debt cannot be the same act that gives rise to the
fiduciary relationship. Id.
If an individual is a fiduciary for purposes of the
Employee Retirement Income Security Act of 1974
(“ERISA”), Pub. L. No. 93-406, 88 Stat. 829 (codified as
amended in scattered sections of 29 U.S.C.), the individual is
also treated as a fiduciary for purposes of § 523(a)(4). See In
re Hemmeter, 242 F.3d at 1190. ERISA defines a fiduciary
as, inter alia, an individual who “exercises any discretionary
authority or discretionary control respecting management of
[a] plan or exercises any authority or control respecting
management or disposition of its assets.” 29 U.S.C.
§ 1002(21)(A)(I).
Both the bankruptcy court and the district court concluded
that Bos’s debt was nondischargeable under § 523(a)(4)
because he controlled money which was contractually
required to be paid to the Funds—pursuant to both the
Carpenters’ Master Agreement and the promissory note—and
therefore was a fiduciary for purposes of both ERISA and
§ 523(a)(4). Specifically, each concluded that because the
trust agreements defined the Funds as including contributions
BOS V. BOARD OF TRUSTEES 7
“required . . . to be made” to the Funds, the unpaid
contributions were plan assets. They then concluded that
because Bos, as president of BEI, personally had control over
BEI’s finances and the authority to make contributions to the
Funds, he personally exercised the requisite control over the
unpaid contributions to be deemed a fiduciary under ERISA,
and therefore under § 523(a)(4) as well.
B
We have consistently held that unpaid contributions by
employers to employee benefit funds are not plan assets. See
Cline v. Indus. Maint. Eng’g & Contracting Co., 200 F.3d
1223, 1234 (9th Cir. 2000). Several district courts within this
Circuit have recognized an exception to Cline, however,
when the plan document expressly defines the fund to include
future payments. See, e.g., Bd. of Trs. v. River View Constr.,
No. C-12-03514PJH(DMR), 2013 WL 2147418, at *6 (N.D.
Cal. Apr. 17, 2013) (concluding that when the plan document
defined the fund as including “all Contributions required . . .
to be made,” unpaid contributions were plan assets); Trs. of
the S. Cal. Pipe Trades Health & Welfare Tr. Fund v.
Temecula Mech., Inc., 438 F. Supp. 2d 1156, 1165 (C.D. Cal.
2006) (concluding that when the plan document defined the
fund as including money “due and owing to the Fund by the
Employers,” unpaid contributions were plan assets). These
courts have construed such language as imposing ERISA
fiduciary status upon an employer simply by virtue of its
control over unpaid contributions to the fund. See, e.g., River
View Constr., 2013 WL 2147418, at *6; Temecula, 438 F.
Supp. 2d at 1168–69.
We have not yet determined whether to recognize such an
exception to Cline. See Carpenters Pension Tr. Fund for N.
8 BOS V. BOARD OF TRUSTEES
Cal. v. Moxley, 734 F.3d 864, 869 (9th Cir. 2013) (expressly
declining to decide whether a plan document can classify
unpaid contributions as plan assets so as to impose fiduciary
status upon an employer). Moreover, the circuits that have
addressed the issue are split.
The Eleventh Circuit, for instance, recognized the
possibility of such an exception in ITPE Pension Fund v.
Hall. 334 F.3d 1011, 1016 (11th Cir. 2003). Notably, the
court there emphasized that the plan document defined the
fund as including receivable property, rather than mere
receivables, distinguishing between “a contractual or legal
claim for payment of the money due, in contrast to the actual
money due.” Id. at 1014 n.4. The court explained that if the
plan asset were merely a contractual right to payment, the
employer would have no authority over the asset so as to
establish a fiduciary relationship. Id. But because the plan
document defined the fund as including receivable property,
the court concluded that the unpaid contributions themselves
could become fund assets at the time of nonpayment, and the
employers—who had control over the money which they
were contractually obligated to pay to the fund—would
therefore be treated as fund fiduciaries by virtue of their
nonpayment. Id.
The Second Circuit has similarly construed a plan
document designating plan assets to include unpaid
contributions as establishing fiduciary status for an employer
who had authority to make such contributions. See
Bricklayers & Allied Craftworkers Local 2, Albany, N.Y.
Pension Fund v. Moulton Masonry & Constr., LLC, 779 F.3d
182, 189 (2d Cir. 2015); see also Rahm v. Halpin (In re
Halpin), 566 F.3d 286, 290 (2d Cir. 2009) (speculating that
a plan document could designate unpaid contributions as plan
BOS V. BOARD OF TRUSTEES 9
assets sufficient to establish fiduciary status for purposes of
§ 523(a)(4), but ultimately concluding that the document in
that case failed to do so).
C
Other circuits, however, have declined to apply such an
exception, particularly in the context of § 523(a)(4).
The Tenth Circuit, for instance, declined to apply the
exception in Navarre v. Luna (In re Luna), 406 F.3d 1192
(10th Cir. 2005).4 The Luna court first concluded that a plan
document could impose on an employer a contractual
obligation that would create some form of plan asset. Id. at
1198–201. Departing from the approach taken by the
Eleventh Circuit in Hall, however, the Luna court emphasized
that the ERISA definition of “asset” is determined by
reference to property law. Id. at 1199. “Under ordinary
notions of property rights, an ERISA plan does not have a
present interest in the unpaid contributions until they are
actually paid to the plan.” Id. Rather, “the plan holds a
future interest in the collection of the contractually-owed
contributions”; in other words, regardless of the language in
the plan document, the plan holds the contractual right to
collect the unpaid contributions—not the unpaid contributions
themselves. Id. at 1199–200; see also Restatement (First) of
Property ch. 1 intro. note (1936) (explaining that “property”
includes intangibles, such as a chose in action). Thus, the
proper question regarding control of the asset is not whether
4
Notably, unlike Hall and Moulton Masonry, In re Luna arose in the
context of a Chapter 7 bankruptcy proceeding, and addressed the specific
question of whether a debt arising from these unpaid amounts was
nondischargeable under 11 U.S.C. § 523(a)(4). 406 F.3d at 1197.
10 BOS V. BOARD OF TRUSTEES
the employer controlled the money that it was obligated to
pay to the plan, but rather whether the employer had control
over the contractual right to collect the unpaid contributions.
In re Luna, 406 F.3d at 1202–08. Because the employers in
Luna had no control over the contractual right to collect the
unpaid contributions—they simply had control over the
money itself—the court concluded that the employers were
not plan fiduciaries, and therefore the debt incurred by failing
to make contractually-required payments to the plan was
dischargeable regardless of § 523(a)(4). Id.
The Sixth Circuit has also declined to apply an exception
to the general rule that an employer cannot be an ERISA
fiduciary with respect to unpaid contributions. In Board of
Trustees of the Ohio Carpenters’ Pension Fund v. Bucci (In
re Bucci), 493 F.3d 635 (6th Cir. 2007), for instance, the
court declined to apply the exception in the § 523(a)(4)
context on the ground that, even if the plan document could
make the unpaid contribution itself a plan asset, such a
classification would impermissibly impose fiduciary status
based on the act of wrongdoing. Id. at 643; see also Sheet
Metal Local 98 Pension Fund v. Airtab, Inc., 482 F. App’x
67, 69–70 (6th Cir. 2012) (adopting the Luna court’s
reasoning to conclude that employers did not have sufficient
control over the plan’s claim for breach of contract to
establish ERISA fiduciary status). Thus, the Sixth Circuit has
determined that an employer cannot commit defalcation
under § 523(a)(4) simply by failing to make contractually-
required contributions, even if the plan defines the fund as
including future contributions.
BOS V. BOARD OF TRUSTEES 11
D
We agree with the view taken by the Sixth and Tenth
Circuits. Indeed, it comports with the limited approach we
take in recognizing fiduciary status, particularly in the
§ 523(a)(4) context. See Cal-Micro, Inc. v. Cantrell (In re
Cantrell), 329 F.3d 1119, 1125 (9th Cir. 2003) (“[W]e have
adopted a narrow definition of ‘fiduciary’ for purposes of
§ 523(a)(4) . . . .”); see also Hall, 334 F.3d at 1015
(acknowledging that fiduciary status should not be imposed
unless the individual is “clearly aware of his status as a
fiduciary”).
Moreover, a typical employer5 never has sufficient control
over a plan asset to make it a fiduciary for purposes of
§ 523(a)(4). Specifically, even if a plan document could
convert an unpaid contribution into some type of plan asset,
and even if the language in either the trust agreements or the
promissory note here were sufficiently specific to do so, such
an “asset” could legally be classified in only one of three
ways.
First, as the Luna court explained, such asset could be
classified as the contractual right to collect payments once
they become due. 406 F.3d at 1199–200; see also
Restatement (Third) of Trusts § 40 cmt. b (2003) (noting that
trust property may include choses in action or claims against
third parties). In the case at bar, such a right could be
enforced either under the Carpenters’ Master Agreement or
5
The parties do not allege, nor is there evidence in the record to support
the notion, that Bos had any other interaction with the Funds that could
have given rise to a fiduciary relationship other than his failure to make
contractually-required contributions.
12 BOS V. BOARD OF TRUSTEES
the promissory note. In either event, however, an employer
with no authority over the management of the plan—such as
BEI here—has no control over enforcing such a right; rather,
as demonstrated by the existence of the present lawsuit
brought by the Board against Bos, the designated fund
administrator has the authority to enforce the contractual
right. Thus, because an employer would lack the requisite
control over such plan asset, it could not qualify as a fiduciary
for purposes of either ERISA or § 523(a)(4).
Second, as in Hall, such asset could be classified as the
unpaid past-due contributions. 334 F.3d at 1014. There,
however, the event that created the debt—the nonpayment of
the funds—was the same event that created the fiduciary
status, and thus, the debt would not fall under § 523(a)(4).
See In re Hemmeter, 242 F.3d at 1190.
Third, as the Board argues here, such asset could be
classified as amounts which the employer must eventually
contribute to the plan, but which are not yet due, thus
avoiding the problem of the act of wrongdoing creating the
fiduciary status. The classification logically fails, however,
as, until the time payment is due, the plan does not actually
possess the money, and in fact has no present right to it. See
Restatement (First) of Property § 153 (1936) (explaining that
an owner has a present interest in particular property only if
it may immediately exercise control over such property).
Thus, such asset is in fact more appropriately classified as the
contractual right to bring a claim against the employer for
delinquent payments if the payments are in fact never made.
Because, as discussed above, the typical employer—like
BEI—would have no control over such a right, the employer
would lack the requisite authority to be considered a fiduciary
under § 523(a)(4). Thus, even if the language in the trust
BOS V. BOARD OF TRUSTEES 13
agreements and the promissory note sufficed to turn unpaid
contributions into some form of plan asset, neither BEI nor
Bos ever had control over such asset prior to nonpayment.
Therefore, consistent with our general rule that unpaid
contributions to employee benefit funds are not plan assets,
see Cline, 200 F.3d at 1234, Bos did not engage in defalcation
for purposes of § 523(a)(4).6
III
Because Bos did not act as a fiduciary under 11 U.S.C.
§ 523(a)(4), and because the bankruptcy court and district
court expressly found that Bos’s debt did not fall under any
of the other nondischargeability exceptions put forth by the
Board, we reverse the district court’s judgment with
instructions to remand to the bankruptcy court with
instructions to discharge the debt. See, e.g., State Bar of Cal.
v. Taggart (In re Taggart), 249 F.3d 987, 994 (9th Cir. 2001),
superseded by statute on other grounds, Cal. Bus. & Prof.
Code § 6086.10(e).
REVE RS E D AND RE MANDED WITH
INSTRUCTIONS.
6
Because we conclude that Bos was not acting as a fiduciary for
purposes of § 523(a)(4), we need not address whether the bankruptcy court
and district court erred in failing to inquire whether Bos behaved with
“gross recklessness” in respect to his failure to make contractually-
required payments to the Funds. Bullock v. BankChampaign, N.A., 133 S.
Ct. 1754, 1757 (2013).