United States District Court, D. Nevada
June 4, 2014
Unite Here Health et al., Plaintiffs
Craig Gilbert et al., Defendants
MOTIONS TO DISMISS [DOCS. 5 AND 22]
JENNIFER A. DORSEY, District Judge.
Plaintiffs are Culinary Union-related employee-benefit trusts that bring this ERISA breach-of-fiduciary-duty action against the principals of Nuthin' Fancy, LLC, the bankrupt operator of the short-lived Lynyrd Skynyrd BBQ and Beer restaurant inside the Excalibur Hotel & Casino, for more than half a million dollars in unpaid benefits allegedly due under the terms of the collective bargaining agreement between the union and the hotel. These corporate and individual principal-defendants ask the Court to dismiss this case under Federal Rule of Civil Procedure 12(b)(6), arguing that (1) they are not parties to the agreement and cannot be bound by it-and, in fact, their non-party status would have made their payments under the agreement's terms illegal; (2) the "threadbare" complaint fails to allege sufficient facts to state a breach of fiduciary duty claim under ERISA or an alter-ego theory; and (3) this action is barred by the automatic bankruptcy stay related to Nuthin' Fancy's Chapter 7 bankruptcy proceeding. Having thoroughly considered the pleadings, briefing, and the parties' April 11, 2014, oral arguments, the Court is unpersuaded by the Defendants' arguments and denies both motions to dismiss for the reasons below.
Plaintiff Unite Here Health is a national union organization that affiliates with local unions Culinary Workers Union, Local 226 and Bartenders Union, Local 165 ("the Unions"). The Unions represent hospitality-industry employees in the hotels and casinos of Las Vegas, Nevada, and they maintain a pension trust known as Southern Nevada Culinary and Bartenders Pension Trust. Unite Here and the Southern Nevada Pension Trust ("the Trusts") are the plaintiffs in this action.
The Excalibur Hotel & Casino in Las Vegas is owned and operated by New Castle, which executed a collective bargaining agreement ("the CBA") with the Unions. Nuthin' Fancy is not a party to the CBA. Nuthin' Fancy did, however, execute a lease agreement with the Excalibur for the Lynyrd Skynyrd BBQ and Beer restaurant in which Nuthin' Fancy agreed to "comply with, adopt the applicable terms and conditions of, and, if required by the terms thereof, take and accept an assignment of and/or become a signature to" the CBA. The restaurant also agreed that it would "fix the salary rate and provisions of employee benefits" "subject to" the CBA obligations.
Plaintiffs allege that from September 2011 to September 2012, Lynyrd Skynyrd employed workers covered by the CBA and, by operation of the CBA and the lease, Nuthin' Fancy was obligated to (1) submit timely written reports showing employees' identities, hours worked, and compensation, and (2) pay monthly fringe benefits to the Trusts based on the hours worked by or paid to employees under the CBA. According to the pleadings, Nuthin' Fancy submitted no written reports and made no fringe-benefit payments and now owes the Trusts more than $500, 000.
Unite Here Health (through its fiduciary Matthew Walker), and the Pension Trust (through its fiduciary Kim Gould) sue the corporate and individual principals of Nuthin' Fancy,  which is currently in Chapter 7 bankruptcy proceedings in the District of Nevada. New Castle, the Excalibur, and Nuthin' Fancy are not parties to this case. Instead, Plaintiffs essentially seek to reach through Nuthin' Fancy's limited-liability-company veil and sue its managers, members, principals, and key employees for breach of fiduciary duty, alleging that they are all "fiduciaries to the Trusts for purposes of ERISA" and breached their fiduciary duties by "failing to make required contributions to the Trusts."
A. Legal Standard
Federal Rule of Civil Procedure 8(a)(2) requires "a short and plain statement of the claim showing that the pleader is entitled to relief." The purpose is to afford defendants fair notice "of what the... claim is and the grounds upon which it rests." Defending a complaint against a Rule 12(b)(6) motion to dismiss therefore "requires more than labels and conclusions"; it calls on plaintiffs to plead factual allegations that are "enough to raise a right to relief above the speculative level." This requires a plaintiff to state claims raising a plausible likelihood that the defendant engaged in misconduct for which the law-and courts-can offer relief.
A plaintiff must state its claim with enough facts, which the court takes as true and construes in the light most favorable to the plaintiff, to be plausible on its face. Pleading facts "merely consistent with a defendant's liability" may suggest possible legal liability. It does not rise to the requisite level of plausibility. Bare and unsubstantiated allegations will not suffice; there must be some substance on which courts might find defendants violating the law and thereby grant a legal or equitable remedy. Further, courts need not accept merely conclusory claims, unwarranted factual deductions, or unreasonable inferences. Complaints are only dismissed under Rule 12(b)(6) if, beyond doubt, "the plaintiff can prove no set of facts in support of the claim that would entitle" him to relief.
The general rule for 12(b)(6) motions is that courts may only consider material in the pleadings. When a complaint specifically identifies documents, the authenticity of which is unquestioned by the parties, the court may consider the full text of those documents without converting the motion to dismiss into a motion for summary judgment. The CBA and lease that plaintiffs attach to their opposition to the corporate defendants' motion to dismiss are specifically referenced in the complaint and are unchallenged by any party. While the Court would reach the same decision based on the allegations in the complaint itself, the Court considers the CBA and lease exhibits. The remaining exhibits are not referenced in the complaint and are not considered here.
B. Breach of Fiduciary Duty
1. Walker and Gould's fiduciary standing
Defendants argue that the unions' fiduciary-breach claim fails because plaintiffs have not alleged who Walker and Gould are, what their fiduciary relationships are, and what actions they "took to ensure concurrence of management and union trustees prior to bringing this lawsuit." Defendants cite an inapposite and unreported District of Nevada case that holds that, as a matter of Nevada state law, there is no fiduciary relationship between a borrower and a lender.
Standing is a threshold issue in any case before a federal district court. "It is axiomatic that, in addition to those requirements imposed by statute, plaintiffs must also satisfy Article III of the Constitution." The Ninth Circuit has not directly addressed ERISA's standing requirements. The Third Circuit's decision in Horvath v. Keystone Health Plan East, Inc., a leading case on ERISA standing, holds that an ERISA plaintiff "need not demonstrate actual harm in order to have standing to seek injunctive relief." When plaintiffs seek restitution or disgorgement under this statute, they pursue remedies that "are individual in nature and therefore require [them] to demonstrate individual loss." Yet in Hovarth, the plaintiff was an individual beneficiary rather than a union or a pension fiduciary, and Hovarth and its progeny are not helpful here.
In urging dismissal, defendants contend that plaintiffs must prove their fiduciary standing "[b]efore a breach of fiduciary duty can legally be established." But on a motion to dismiss, the Court's task is not to finally adjudicate whether a fiduciary breach actually occurred; it is to determine whether a plausible claim for relief is pled and whether defendants have fair notice of claims against them under the Twombly and Iqbal standards. That burden is satisfied here. The plaintiff-trusts are named in the complaint caption and in the body as the parties bringing this action-and Walker and Gould are named as fiduciaries acting on behalf of the pension fund in the caption-so the Court takes as true, on the motion-to-dismiss standard, that the plaintiffs have standing to sue. If defendants wish to make an evidentiary attack on the individuals' fiduciary standing, that argument is better suited for a summary-judgment motion.
2. Piercing the Nuthin' Fancy Veil
The corporate and individual defendants also attack plaintiffs' complaint under the Supreme Court's decision in Peacock v. Thomas , arguing that, under 29 U.S.C. § 1132(a)(3), the trustees lack standing "for purposes of piercing the Nuthin' Fancy corporate veil or establishing alter ego status." Peacock stands for the proposition that "[p]iercing the corporate veil is not itself an independent ERISA cause of action, but rather is a means of imposing liability on an underlying cause of action." Defendants' argument that Peacock precludes the instant suit because it is based on an alter-ego theory misreads or overextends Peacock 's reach. The Ninth Circuit cited Peacock for the proposition that "a request to pierce the corporate veil is only a means of imposing liability for an underlying cause of action and is not a cause of action in and of itself." Plaintiffs are not asserting an alter-ego claim: they are asserting a breach-of-fiduciary-duty claim and their alter-ego theory is only an additional "means of imposing [fiduciary] liability." The motions to dismiss therefore cannot succeed on this argument.
3. Corporate and individual defendants' fiduciary duty
Defendants assert that plaintiffs' fiduciary-breach claim cannot proceed because the plaintiffs "do not even attempt to allege that the [Corporate and Individual] Defendants are proper fiduciary defendants under 29 U.S.C. § 1002(21)." ERISA limits fiduciary liability "to the extent" qualified defendants exercise discretion under the ERISA statute. It also "requires a broad definition of fiduciary." The Ninth Circuit recognizes that "[a] fiduciary is anyone who exercises discretionary authority or control respecting the management or administration of an employee benefit plan."
Plaintiffs contend in their opposition papers that the corporate and individual defendants controlled assets due to the Trusts, that these assets were not paid, and that "Defendants were the primary decision makers regarding payment of contributions to the Trusts." Moreover, their complaint alleges that "Controlling Defendants exercised control and made decisions regarding remittance of reports and contributions, or lack thereof, to the Trusts." These allegations satisfy the factual predicate of "discretionary authority, control, or responsibility" that is required by the "broad" language of ERISA, and therefore, the claim survives Rule 12(b)(6) plausibility review.
C. Taft-Hartley Writing Requirement
Defendants next argue that "Plaintiffs fail to allege the existence of any written agreement between a union representing those employees and Nuthin' Fancy." The CBA was signed by union representatives and the Excalibur. Without a CBA signed by Nuthin' Fancy, without other writings demonstrating the restaurant's intent to be bound to the CBA, and without a course of conduct (such as contributions paid) binding it to the CBA, the defendants argue, Nuthin' Fancy had no obligation to make any pension contributions under the CBA. Defendants characterize plaintiffs' suit as a futile effort use a "third-party lease" to "bind a completely separate entity to a third-party CBA."
The Taft-Hartley Act does not permit an employer to make trust-fund contributions unless the agreement to do so is specified in a writing. The purpose is to establish "the detailed basis on which such payments are to be made." The Ninth Circuit recognizes that "[u]nder the plain words of the statute, any written agreement with the employer can establish an employee's eligibility for Trust benefits, so long as it actually specifies, directly or by incorporation, the detailed basis' on which contributions are to be made." The writing requirement can be satisfied by a CBA, even if the CBA is expired. The writing also need not be signed where there is "a course of conduct plus a writing." In other words, whether there is a formal contract between plaintiffs and defendants does not determine whether they have a binding agreement, as long as there are (1) a writing that details the method of benefit payment and (2) conduct demonstrating assent to those detailed terms.
Plaintiffs urge that the CBA is the writing that satisfies 29 U.S.C.A. § 186. Plaintiffs never contend that Nuthin' Fancy signed the CBA; instead, they argue that Nuthin' Fancy's conduct demonstrates that it adopted the CBA and manifested the restauranteurs' intent to be bound by it. Plaintiffs' complaint alleges that, in September 2010, New Castle and Nuthin' Fancy executed a lease for restaurant space inside the Excalibur. They write that "[a]s a term of that Lease, Nuthin' Fancy expressly acknowledged and agreed that  its employees must be represented by the Union and that  New Castle is a signatory to the CBA and  covenanted and agreed that it would at all times comply with and adopt the terms and conditions of the CBA."
This theory is at least plausibly borne out by the plain language of the lease between New Castle doing business as the Excalibur and Nuthin' Fancy. Section 8.16, subsection A states:
Tenant hereby covenants and agrees that Tenant shall at all times comply with, adopt the applicable terms and conditions of, and, if required by the terms thereof, take and accept an assignment of an/or become a signature to; as they relate to Tenant's operation of the Premises, all of Landlord's Collective Bargaining Agreements.
Phrased more simply, with respect to restaurant operation in the Exalibur, Nuthin' Fancy adopted all applicable terms and conditions of New Castle's CBAs. Subsection E builds on this agreement:
Subject to the provisions of sub-paragraph A of this Section 8.16, as it applies to persons or work subject to the Landlord's Collective Bargaining Agreements, Tenant shall, in Tenant's sole discretion, fix the salary rate and provisions of employee benefits of Tenant's employees and shall be responsible for all such salaries, employee benefits...
In other words, Nuthin' Fancy was free to determine its employees' salaries and benefits-but, to the extent that Nuthin' Fancy's employees were subject to the CBA, the terms of the CBA governed. Read together, these lease terms support the complaint's allegations that Nuthin' Fancy expressly "agreed that it would at all times comply with and adopt the terms and conditions of the CBA."
The course of conduct relied upon to enforce a writing-particularly where the defendant was not an original party to the CBA-must actually "manifest an intention to abide by the terms of the agreement." If a party signs an additional contract that expressly binds it to the terms of the CBA-as alleged here-then the plaintiffs can plausibly argue that the detailed-writing requirement is satisfied by the CBA and that the assent-manifesting conduct is supplied by the lease. Plaintiff's complaint thus satisfies the Rule 12(b)(6) standard for plausible pleading to survive dismissal.
D. No Bankruptcy Stay Applies
Defendants urge that an automatic bankruptcy stay under 11 U.S.C. § 362 prevents this case from advancing against the principals of Nuthin' Fancy, which is a Chapter 7 debtor, where Nuthin' Fancy alone has filed bankruptcy. The only cases in which courts extend the Section 362 automatic stay to non-debtor entities, however, are those where the claim against non-debtors is brought under an alter-ego theory. If the alter-ego argument is true, the debtor and the entity are regarded as identical. Because a debtor has an equitable interest in its alter ego's assets, an alter-ego claim is the estate's property under 11 U.S.C. § 524. Defendants offer no authority for the proposition that similar protections bar an alleged fiduciary-duty-breach claim where, as here, Plaintiffs allege that the Defendants breached fiduciary duties to the Trusts rather than to the debtor.
Defendants also assert that "the Complaint should nonetheless be dismissed because Nuthin' Fancy's lease was subject to discharge through Chapter 7 bankruptcy, and was in fact undisputedly discharged through the bankruptcy court's order converting to Chapter 7 and liquidating assets." But the statutory discharge injunction states: "A discharge under [the Bankruptcy Code] operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived." It is axiomatic that for the defendants to receive a discharge-and thus to benefit from the discharge injunction-they must be debtors and a court must enter an order discharging them as debtors. The Nuthin' Fancy bankruptcy is still pending, and not even Nuthin' Fancy has received the benefit of the discharge injunction-let alone its principals. Even assuming that Nuthin' Fancy receives a discharge in the future, these defendants would not benefit because they are not bankruptcy-proceeding parties who would be covered under such an order. Nuthin' Fancy's Chapter 7 bankruptcy thus does not provide a basis for dismissal of this case.
Accordingly, and with good cause appearing,
IT IS HEREBY ORDERED that Defendants Drive This!, Drive This Entertainment!, Trifecta Partners, and Eleventeen Enterprises' Motion to Dismiss [Doc. 5] is DENIED.
IT IS FURTHER ORDERED that Defendants Craig Gilbert, Michael Frey, Mathilda Murdock, and Benjamin Lutz's Motion to Dismiss [Doc. 22] is DENIED.