In his October 25, 2011 Decision and Order, Judge Richard M. Berman ordered six alter ego companies to pay Plaintiffs, the trustees and fiduciaries of multiemployer employee benefit plans, nearly $12 million in unpaid contributions and statutorily-mandated remedies pursuant to ERISA Section 502(g)(2), 29 U.S.C. § 1132(g)(2). See Gesualdi v. Juda Constr., Ltd., et al., 10 Civ. 1799 (RMB), 2011 WL 5075438 (S.D.N.Y. Oct. 25, 2011) (“Decision”). Friedman & Wolf represented the Plaintiffs in this matter.
This article focuses on the auditing aspects of the lawsuit and the Decision, including the following holdings: (1) a prior routine audit that took place outside the six-year statute of limitations did not render untimely Plaintiffs’ claims in this case for an overlapping time period; (2) a prior routine audit settlement did not bar the Plaintiffs’ claims for the same time period; (3) the audit reports are admissible evidence and conclusive of damages; and (4) Plaintiffs need not identify specific truck drivers for whom contributions were required. Although not discussed herein, the Court also made a number of other significant findings, including that (1) it had subject matter jurisdiction over the alter ego claims; (2) the signatory companies were bound by the collective bargaining agreements (CBAs) as evidenced by their judicial admissions and adoption; (3) an unsigned CBA meets ERISA’s requirement that contributions be made pursuant to a writing; (4) the Statute of Frauds does not apply; (5) the Corporate Defendants are alter egos of each other; and (6) as alter egos, the non-signatory Defendants are bound to the signatories’ CBAs.
In this case, the Trustees sought unpaid contributions revealed in two sets of audits (or “agreed upon procedures”) of related defendants, namely, (1) the 2000-2004 audits of third-party records pertaining to signatory company Whitney Trucking performed by Bond Beebe; and (2) the 2006-2009 audits of two of the non-signatory alter ego Pure Earth companies performed by Schultheis & Panettieri. For a detailed discussion of the alter ego and successor relationships between the Corporate Defendants, see Decision, at *7-9.
With regard to the Whitney Trucking audits, the Trustees gained access to approximately twenty (20) boxes of documents that were subpoenaed by the court-appointed investigations officer for the union from third-party contractors that had hired signatory company Whitney Trucking. The documents comprised accounts receivable and payable, including invoices from Whitney Trucking to the subpoenaed customers for covered driving work performed, with supporting back-up documentation. Attached to the invoices were trip tickets with information such as the date, job location, customer, disposal facility, driver, and truck number.
With regard to the Pure Earth audits, during the discovery phase of the lawsuit the Pure Earth Defendants produced their general ledger and approximately 125 boxes of documents, including invoices to their customers and from their subcontractors for covered driving work performed. Attached to the invoices were trip tickets with information such as the date, job location, customer, disposal facility, driver, and truck number.
The auditors, in consultation with the Trustees and counsel, developed agreed-upon procedures for the review of the documents and the assessment of whether contributions had been paid by Whitney Trucking, Juda, or any other signatory company for covered work performed by them, their alter egos, or their subcontractors. Here, in short, the applicable CBAs required contributions to be paid by a signatory company for covered driving work performed by its subcontractors for which the subcontractors failed to make contributions, subject to certain notice provisions.
Addressing the Whitney Trucking audit, the Court first rejected Defendants’ argument that the six-year statute of limitations barred the Trustees from seeking the subject unpaid contributions. In particular, Defendants maintained that a prior routine payroll audit of Whitney Trucking was performed for an overlapping time period, more than six-years before the Trustees filed the Complaint in the instant lawsuit. The prior audit did not reveal the unpaid contributions at issue in this lawsuit. However, the Court accepted the auditors’ testimony that the underpayment of contributions by Whitney Trucking for subcontracted work that was passed through a related company would not have shown up on a routine payroll audit. See Decision, at *10. Auditors Stephen Bowen and Philip Vivirito testified, generally, that unless there was some indication of an inappropriate relationship with a non-signatory affiliate, or some sort of trigger, they would not have requested the non-signatory’s books and records and/or invoices to third parties.
Thus, because the Trustees “did not receive the information necessary to perform the audits of Defendants’ subcontracted work until sometime after November 6, 2007,” the Court concluded, “Plaintiffs’ claims are timely because Plaintiffs did not ‘know or [have] reason to know of the injury’ until at least November 6, 2007, less than three years before Plaintiffs filed their Complaint and well within the six-year limitations period.” Decision, at *10. Further, the Court found that a settlement agreement resolving the aforementioned routine payroll audit did not bar the Trustees’ claims for the same time period. The Court explained that the agreement only resolved the unpaid contributions found owing by that particular audit, and it did not contain a release. Id.
Defendants next argued that the audit reports and auditors’ declarations were inadmissible hearsay. If the audit reports and auditor testimony had been deemed inadmissible, Plaintiffs would have been unable to prove damages. However, the Court rejected Defendants’ various evidentiary arguments, holding that the audit reports were admissible under Federal Rule of Evidence 1006, which permits the entry of summaries of voluminous records. See Decision, at *11. “Summary evidence is admissible as long as the underlying documents also constitute admissible evidence and are made available to the adverse party.” Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 53 (2d Cir. 1993); see Trs. of Chicago Plastering Inst. Pension Trust v. Cork Plastering Co., 570 F.3d 890, 901 (7th Cir. 2009) (audit report admissible as summary report under Rule 1006). The Court cited U.S. ex rel. Evergreen Pipeline Construction Co., Inc. v. Merritt Meridian Construction Corp., 95 F.3d 153, 163 (2d Cir. 1996), for the proposition that summary evidence is admissible under Rule 1006 where the underlying documents have been made available to defendant or would have been available if defendant had requested them. See Decision, at * 11. Here, Defendants did not request to review the underlying documents, despite Plaintiffs having identified them repeatedly both pre-litigation and in discovery.
To be admissible as summaries, the underlying documents (here, the invoices, trip tickets, etc.), must be admissible as well. See Evergreen Pipeline, 95 F.3d at 163; Tamarin, 13 F.3d at 53; Trs. of Chicago Plastering Inst. Pension Trust v. R.G. Constr. Servs., Inc., 05 Civ. 5669, 2009 WL 2240864, at *3 (N.D. Ill. July 24, 2009). In this case, the Court found that the underlying documents that the Trustees’ auditors used to perform the audits were admissible as business records under Federal Rule of Evidence 803(6). SeeDecision, at *11. The Court cited the auditor’s unrebutted testimony that he had received the Whitney Trucking documents from the union’s court-appointed investigations officer, who himself submitted a declaration stating that he had subpoenaed the records directly from Whitney Trucking’s customers. Id. As for the Pure Earth audits, the documents were produced by the companies themselves, as evidenced by the auditor’s declaration. Id. The Court was thus “satisfied that the records were produced in the ordinary course of business and ‘have sufficient indicia of trustworthiness to be considered reliable.’” Id. (quotingSaks Int’l, Inc. v. M/V Export Champion, 817 F.2d 1011, 1013 (2d Cir. 1987)).
Finally, the Court found the audit reports and the auditors’ testimony conclusive of damages, awarding the entire amount of unpaid contributions and interest found in the respective audits. See Decision, at *12. The Court rejected defendants’ arguments that “some of the trip tickets contained partial or blank names for the truck driver, and that ‘[t]he use of an incomplete trip ticket as the primary evidence of an alleged liability is without merit.’” Id. In doing so, the Court cited an earlier decision in the Southern District of New York, stating that “courts have squarely rejected the argument that ‘Plaintiffs have a duty to identify the specific drivers for whom the benefit contributions are intended.’” Id. (quoting Gesualdi v. Laws Constr. Corp., 759 F. Supp. 2d 432, 442 (S.D.N.Y. 2010)).
Other courts also have discussed and relied on an audit report and/or an auditor’s testimony to assess damages. See, e.g., Mo–Kan Teamsters Pension Fund v. Creason, 716 F.2d 772, 778 (10th Cir. 1983) (not error to base damages on audit report estimate); Fuchs v. Tara Gen. Contracting, Inc., 06 Civ. 1282 (ETB), 2009 WL 2922840, at *7 (E.D.N.Y. Sept. 8, 2009) (relying on a Schultheis & Panettieri audit report and the testimony of Stephen Bowen, the auditor conducting the Pure Earth audits discussed herein); Grabois v. Action Acoustics, Inc., 94 Civ. 7386, 1995 WL 662127, at *5 n.3 (S.D.N.Y. Nov. 9, 1995) (“Courts have found it appropriate to rely on an audit or an auditor’s opinion to prove that defendant employers did not make required contributions to funds.”); Local 282 Welfare Trust Fund v. A. Morrison Trucking, Inc., 92 Civ. 2076, 1993 WL 120081, at *2 (E.D.N.Y. March 30, 1993) (“Plaintiffs are correct in asserting that it is appropriate to rely on an audit to prove that defendant did not make the required contributions.”); Chicago Painters’ & Decorators’ Pension Fund v. Sel-Cor Servs., Inc., 91 Civ. 1119, 1992 WL 168796, at *3 (N.D. Ill. July 13, 1992) (“An auditor’s opinion supported by an audit report is sufficient to establish the amount of contributions.”).
Thus, in reliance on the audit reports, the Court ordered Defendants to pay the Funds over $4 million in unpaid contributions, plus mandatory damages under ERISA, including interest and additional interest. See Decision, at *13. The Court subsequently awarded $616,120 in attorneys’ fees and costs, including $256,719 in auditors’ fees.
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